The Roadmap for Pensions Reform – What’s Really Changing?

On 13th November, the Government’s Interdepartmental Pensions Reform & Taxation Group (IDPRTG) published its long-awaited conclusions, following two years of public consultation and market research. While the 145-page document contains a huge amount of detail, the key recommendations that financial advisors may find of interest are:

• Buy-Out-Bonds and Retirement Annuity Contracts could cease to be available for new business (existing policies will be allowed to run to maturity).
• The prohibitions of Buy-Out-Bonds and occupational schemes with more than 15 years’ service moving to PRSAs should be removed.
• It is proposed that policy holders who transfer deferred benefits from an occupational pension scheme into a PRSA will retain their right to a lump sum based on salary and service.
• The option to transfer a Retirement Annuity Contract to an Occupational Pension Scheme should be opened.
• The requirements around Certificates of Benefit Comparison will be reviewed.
• PRSA communication should be primarily in electronic format.
• The effect of charging restrictions for PRSAs on investment choice is to be reviewed.
• Changes to PRSAs to reduce the necessity for multiple PRSAs will be examined
• The early retirement age of 50 should move to 55 on a phased basis
• The option to avail of an A(M)RF when choosing to take a lump sum based on salary and service should be introduced
• BIK on employer contributions to PRSAs, where applicable, should be removed
• An option to choose an ARF instead of an annuity may be available for excess funds remaining after the payment of the maximum death-in-service lump sum.
• ARFs should be replaced by a combination of in-scheme drawdown and whole-of-life PRSAs.
• ARF assets will be treated the same way as any other asset for Inheritance Tax purposes except if it is being inherited by a spouse. (We assume that this also applies to Vested PRSAs).
• The ARF should be covered by the Investment Compensation Scheme.

In ITC we think that the majority of suggestions will find favour with financial advisors and pension clients. We would however put out a word of caution of not relying on these proposals (yet) in your pension planning. Pensions reform is notoriously tricky and the report can be added to many similar pronouncements made by Government since 2002, so far with very little to show for them.

Eoin Hassett
ITC Business Development Manager

_{*Please note this content is the view of the author and not of Independent Trustee Company}