The government published its Interdepartmental Pensions Reform and Taxation Group (IDPRTG – that rolls off the tongue so easily) report on the 13th of last month.
The IDPRTG is led by the Department of Finance and members are from the Department of Public Expenditure and Reform, the Department of Social Protection, the Revenue Commissioners and the Pensions Authority.
The aim of the report is to consider three general areas:
- simplifying and harmonising the supplementary pension landscape;
- an assessment of the cost of State support for pension savings;
- review the Approved Retirement Fund (ARF) regime
So, what does this really mean in lay-man’s terms?
Well, it means ditch EPPs (by this I mean one man occupational pensions including SAPS), PRBs (AKA BOBs) & RACs (AKA PPPs) and replace them with a PRSA product that actually performs the same way, look at reducing the tax relief available on contributions to pensions (marginal to standard rate or a 25% credit system like what is being proposed with Auto Enrolment), ditch the AMRF and ultimately replace the ARF for a life-long PRSA.
Ultimately the goal of the report and the group is to simplify the regime that currently exists, which is fair enough as it is quite complicated where, for example;
- PRBs cannot transfer to a PRSA but can to an ‘EPP’,
- RACs cannot transfer to an ‘EPP’ but can to a PRSA,
- the 15 year ‘rule’ stops certain transfers from an ‘EPP’ to a PRSA,
- death benefits etc. payable are a function of your employment status and what you invested in / through
- and access to benefits at drawdown can also be different depending on what type of product what you invested in/ through.
In fairness it is a bit of a mess!
The suggestions contained in the report are, broadly speaking;
- A)Harmonise the rules between PRSAs and other arrangements –
- so look at contribution limits for employers on PRSA contracts
- drop the potential for BIK element on employer contributions to a PRSA
- get rid of the 15 year ‘rule’ on transfers to a PRSA
- B)From a TBC date no more sale of PRBs and RACs but allow existing PRBs & RACs to die out over time with the facility for PRBs to transfer to PRSAs and RACs to transfer to ‘EPPs’
- C)Get rid of the antiquated and quite pointless AMRF requirement
- D)Ultimately replace the ARF regime with a ‘whole of life’ PRSA
- E)Allow for NRA (normal retirement age) to start from age 55
- F)As Gaybo used to say ‘there is one for everyone in the audience’, ARFs for all, that is if you went for the salary and service option in an EPP the balance of the fund would be allowed move to an ARF
- G)There are a few other smaller things recommended like standardising the definition of ‘ill health’ and allowing life cover be included with a PRSA, and implicitly killing off the one member EPP through PRSA changes and IORP II (don’t get me started on that again!!)
(dropping TLAs, three letter abbreviations, would be a great move!!)
So my thoughts on the report
The current regime is a mess, it’s a cluster f*** and needs significant reform. I don’t have an issue with a much simpler system, in fact I welcome it. People have to know why saving for their retirement is a good thing and understanding what a pension is and why it’s a good thing needs to be within the mental grasp of all. The harder the system is to understand the easier it is for someone to decide not to engage with it.
My fear is however we have been here before several times before, the National Pensions Policy Initiative (NPPI) was published in 1998 and we have bounced around with reports and no real action for over 20 years at this stage.
- National Pensions Policy Initiative (1998)
- National Pensions Review (2005) and Special Savings for Retirement (2006)
- Green Paper on Pensions (2007)
- Commission on Taxation Report (2009)
- National Pensions Framework (2010)
- OECD Reviews of Pension Systems: Ireland (2014)
I’m sure I could find more reports if I tried but you get the point.
(As side observation – it appears that whenever Auto Enrolment is even whispered about we have a recession, karma is telling us something!)
I am hoping that this report and its recommendation are implemented and implemented quickly, the easiest thing would be to place a new regime over the existing one, i.e. change the PRSA legislation to allow it act the same as an EPP or RAC / PRB , allow (as the report recommends) existing EPPs, RACs, PRBs run their course with a few tweaks.
Also – grant the exemption to one member schemes provided for in IORP II and let the regime continue on as it which creating the new simpler system over………………hopefully there will be consultation with industry representative bodies before (if) any of the recommendations are implemented.
Author: Paul Murray is a Director at Quest Capital Trustees, www.qct.ie, 9 Fitzwilliam Square, Dublin 2