Private pensions in Ireland Roscommon CIC 3 April 2008 Ciarán Holahan Higher Executive Officer Information Unit The Pensions Board

Agenda 1.The Pensions Board 2.Types of pensions 3.Why have a pension? 4.Tax relief – how it works 5.Occupational pension schemes (OPSs) 6.Disclosure for OPSs 7.Preservation and transfer options 8.PRSAs 9.Personal pensions (RACs) 10.Family Law 11.Summary

The Pensions Board Established by the Pensions Act, 1990 Main functions are set out in the Act and include –to monitor and supervise the operation of the Act and pension developments generally Board has 2 statutory roles – regulatory and policy Promoting pensions development, information and awareness is an associated support function. Board conducts the National Pensions Awareness Campaign (NPAC) on behalf of Government as recommended in the “Securing Retirement Income” report of the National Pensions Policy Initiative published in 1998

Types of pensions State pensions Occupational or company pension schemes (defined benefit or defined contribution – DB or DC) Personal pensions or RACs (retirement annuity contract) PRSAs (personal retirement savings accounts)

Voluntary regime for supplementary pension provision Company Pension Scheme (88,069 schemes with 726,405 members) (68.9% DB schemes and 31.1% DC schemes) (Fund assets in excess of €70 billion (estimate)) Personal Retirement Savings Accounts (PRSAs) (Over 110,000 PRSAs with asset value of €1.06 billion- June 2007) (82,467 employers had signed up with a PRSA provider ) Personal Pension Plans and Retirement Annuity Contracts (RACs) (In excess of 200,000 contracts – Irish Insurance Federation) Types of pensions

Why have a pension? The current state social welfare pension is € per week (or € 10,883 per year) …….will this be enough for you to live on ? 87% of the Pensions Board Consumer Research sample said that the State old age pension would NOT meet their needs in retirement

Why have a pension? Provision of regular income to replace earnings in retirement, or early retirement due to ill-health Provision of lump sum benefit income for surviving dependants Tax Reliefs Income Tax and PRSI relief on employee contributions Employer contributions not taxed as BIK (unless paid to PRSA) Pension schemes do not pay income or capital gains tax on investment returns. Part of your retirement benefit may be paid as tax-free cash sum

Tax Relief – how it works The maximum contribution rate as a percentage of total pay/net relevant earnings on which you can receive tax relief is: Highest age at any time during the tax year Limit Under 30 15% % % % % 60 and over 40% Notes: Contributions will also be relieved from the PRSI and the Health Levy, if you pay these charges. For tax purposes these contributions are limited to earnings up to a maximum of €275,239 in any year.

Tax relief – how it works EXAMPLE 1 – no pension contributions Income: €100 Tax of 20% on €100:€20 Take home pay:€80 EXAMPLE 2 – pension contributions made Income:€100 Pension contribution:€20 Tax of 20% on remaining €80:€16 Take home pay:€64

Tax relief – how it works Lower tax rate (20%); Higher (42%) Higher rate tax payers will get even more benefit PAYE workers will benefit from PRSI and Health Levy relief also – up to 26% for lower tax band and 48% for higher tax band.

Tax relief – how it works Income Tax and PRSI relief on employee contributions Employer contributions not taxed as BIK (unless paid to PRSA) Pension schemes do not pay income or capital gains tax on investment returns. Part of your retirement benefit may be paid as tax-free cash sum Pension taxed as PAYE

Company Pension Schemes Also known as Occupational Pension Schemes, sponsored by employers on behalf of employees In private sector, funded arrangement set up under trust so funds held separately from company assets In public sector usually ‘pay as you go’ unless commercial public sector Occupational Pension Schemes fall into 2 categories: 1. Defined Benefit 2. Defined Contribution Operation of schemes is regulated by Pensions Act and monitored by the Pensions Board

Company Pension Schemes Pension payable on retirement, usually 65, for your lifetime and taxed under PAYE Once-off tax free cash sum on retirement of up to 1½ final salary A pension may be payable to your spouse/dependants/children on your death, either before of after pension commences. A lump sum may be payable on your death either before or after your retirement A pension and/or lump sum may be payable if you retire in ill-health See PB Information Booklets ‘What are my Pension Options?’ and ‘Women and Pensions’

Other issues Preservation (2 year rule) Options on leaving Disclosure (statements, annual reports etc.) Pensions Ombudsman Remittance of contributions Whistleblowing

General disclosure regulations Aim is to ensure members are well informed of how their scheme operates and what benefits they are entitled to. Some information is provided automatically and some must be provided on written request See appendix to PB Information Booklet ‘What do you know about your pension scheme?’

General disclosure regulations Trust Deed and Rules – within 4 weeks of written request Explanatory booklet – automatically within 2 months of joining scheme and within 4 weeks of written request Annual member benefit statement – automatically once every 12 months Leaving service options letter – within 2 months of leaving employment

New disclosure regulations Annual Member Benefit Statements DC schemes Statements of Reasonable Projections (introduction deferred until 1 January 2009) Breakdown of contributions received and invested (and explanation of difference) Investment options for members Disclosure required describing Default Investment Strategy, investment alternatives, charges, risk exposures etc.

Preservation and options on leaving Preservation – 2 year rule If in scheme for 2 years – then member qualifies for ‘preserved benefits’ – they cannot get a refund of contributions but are entitled to the benefit of their employer’s contribution. Have statutory right to options

Options on leaving Leave benefit deferred until retirement Transfer benefit to scheme of new employer (can’t transfer from public to private) Transfer benefits to ‘buy-out’ bond Transfer benefits to PRSA subject to conditions (certificate of benefit comparison and 15 year rule) Transfer benefits overseas (subject to Revenue conditions)

Personal Retirement Savings Accounts (PRSAs) For employees, self-employed, homemakers, carers, unemployed or any other category Contract between individual and PRSA provider – Investment account holding units in investments managed by approved PRSA provider Two types –Standard PRSA and Non-Standard PRSA Mandatory employer access Usual tax reliefs applicable Transfers to and from other pension arrangements are facilitated as far as possible Pension Board approves PRSA products and monitors activities of PRSA providers

PRSA Benefits In general can take retirement benefit anytime from % of fund as tax-free lump sum at retirement Number of options on how to use balance 1. Purchase annuity with life assurance company, or 2. Transfer value of assets to an Approved Retirement Fund (ARF) subject to meeting the qualifying conditions. Withdraw funds as required (taxed as PAYE), or

PRSA Benefits 3. Retain funds in PRSA and opt to draw income as required (taxed as PAYE). To avail of this option, a minimum of €63,500 must be used to purchase annuity or kept in PRSA until age 75 unless minimum income of €12,700 pa 4. On death before retirement – value of fund available as death benefit payable as lump sum or pension or combination of both 5. On death after retirement benefits payable depend on options chosen at time annuity purchased and if ARF in place.

Personal Pensions and Retirement Annuity Contracts (RACS) Self-employed or those in non-pensionable employment can take out a Personal Pension Plan aka Retirement Annuity Contract (RAC) Individual contract between individual and insurance company Can also effect a life assurance policy at some time to protect dependants These plans are not covered by Pensions Act but are regulated by Insurance Acts

Personal Pensions/RACs Benefits Options and benefits on death and on retirement much the same as PRSAs May not normally retire ‘till age 60 May retire at any stage in permanent ill-health See PB Information Booklets ‘What are my pensions options?’, ‘Women and Pensions’ and ‘PRSAs – a Consumer’s Guide’

Employers must play their part Access for all Employees –By law an employer must provide ALL employees with some form of access to a pension, whether they are in full-time, part-time, temporary, contract or casual employment. –All employers regardless of the size of their workforce are obliged to provide access to a Standard PRSA if those employees fall into the category of “excluded employees” (details available on the Board’s website).

Pension Adjustment Orders (PAOs) PAOs do not apply for judicial separations or foreign divorces; –if granted before 1/08/1996, –Irish divorces granted before 27/02/1997 –for non judicial separations i.e. separation by agreement. A PAO designates part of the pension benefits –to a non member spouse –or person representing a dependent child.

PAOs - continued Separate PAOs can be made in relation to; –retirement benefits (benefit payable to a member spouse) –and contingent benefits (e.g. Death in service benefits). PAO in relation to contingent benefits must be made with 12 months of judicial separation or divorce. General info on a spouse’s pension can be sought through the trustees of the pension scheme. Personal info will be given on your spouses consent and if no consent is given you may apply for a court order for info to be released.

PAOs - continued Court rules on 2 key factors – relevant period and relevant percentage. A ‘designated benefit’ is awarded and will commence at same time as member spouse unless an ‘independent benefit’ is requested, i.e. transfer of a designated benefit either within the scheme or to another scheme, to a bond, or a PRSA. For further information see PB Information Booklets on Family Law and Women & Pensions

–Only 61.8 % of the adult Irish workforce over 30 years of age –Only 58.3% of men in the Irish workforce –Only 50.6% of women in the Irish workforce Less than 25% of those working in –the agricultural industries including farming –working seasonal & part-time –working in the catering & tourism industries ….…have private pensions (Source: CSO Survey Dec 2006) The Facts

Changing Demographics Numbers at work 2,000,1002,268,0002,125,000 Aged over ,000844,0001,532,000 Numbers at work per person over

More information….. See Information booklets and ‘Guide to Pensions’ Information Unit:

More information….. Financial Regulator Revenue

Summary OPSs – in trust Disclosure requirements Write to trustees/pensions company with enquiries Employers’ PRSA obligations Booklets, website and information unit of the Board

Thank you for your attention! Any questions???