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TEAGASC
2 September 2004
Aongus HorganAssistant Head of Information & Training
2
OVERVIEW
Pension arrangements in Ireland
Occupational pension scheme statistics
Occupational pension scheme overview
Types of schemes
PRSA Statistics
PRSA/Providers
Key Features
Employers’ Role
Role of Board
Additional Voluntary Contributions
Next Steps
3
PENSION ARRANGEMENTS IN IRELAND
Social Welfare Pension
Contributory Pension
Non-contributory Pension
Regulated by Dept. Social & Family Affairs
Retirement AnnuityContract/Personal Pension
Individual Arrangements
e.g. Self-Employed
Irish Financial Services Regulatory Authority (IFSRA)
Occupational Pension
Public Sector/Private Sector
Defined Benefit Can be Defined Benefit or Defined Contribution
Regulated by the Pensions Board
PRSA
Individual Arrangements
Everybody
First time productRegulated and Approved by
PB/Revenue
See Pensions Board Booklet ‘What are my pension options’ (Appendix C) in relation to complaints and powers of the Pensions Ombudsman
4
OCCUPATIONAL PENSION SCHEMES IN IRELAND
112,685 occupational (i.e. employers) pension schemes
724,333 members in occupational pension schemes
Overall membership is increasing
5
OCCUPATIONAL PENSION SCHEMES
Employees in Private/Commercial Public Sector
Employer(s) establish schemes on voluntary basis
Scheme must be set up as a trust
Separate from employer’s business
Trustees responsible for administration
Schemes financed on a pre-funded basis – resources set aside in a trust fund for payment of pensions, when due
6
TYPES OF SCHEMES
Defined Benefit Schemes
Pension and other benefits payable to scheme members and dependants are clearly defined
Guaranteed benefit – risk borne by employer
Benefit usually a fraction of final salary for each year of service
Most common benefit formula – 1/60th of salary for each year of service
Majority of scheme members in these schemes – 67%
7
TYPES OF SCHEMES
Defined Contribution Schemes
Contributions into the scheme are defined e.g. 10% of annual pay
Pension and other benefits are based on amount of contributions made during member’s service and returns earned from investment
Risk borne by employee
Gradual move to Defined Contribution schemes
In 1996 17% of members in DC schemes, while currently 33% of members in DC schemes
8
PRSA Stats at 30 June 2004
Total value of assets €83 million approximately
Total number of Contracts sold 32,920
Standard 26,154
Non-standard 6,766
Total number of employers who have designated a PRSA provider 61,977
9
WHAT IS A PRSA?
Simple contract between a PERSON and a PRSA PROVIDER
PERSON: employees, self-employed, homemakers, carers, unemployed or any other category of person
PRSA PROVIDER: an investment firm, a life office or a credit institution which produces, markets or sells PRSA products
10
PROVIDERS WITH APPROVED PRODUCTS
Ark Life Assurance Company Limited,Canada Life Assurance (Ireland) Ltd,Custom House Capital Limited,Eagle Star Life Assurance Company of IRL Ltd,EBS Building Society,Friends First Life Assurance Company Ltd.Hibernian Life & Pensions Ltd,Irish Life Assurance plc,New Ireland Assurance Company plc,The Standard Life Assurance Co.
56 products – 23 Standard and 33 Non – Standard
See Pensions Board website www.pensionsboard.ie
11
WHAT IS A PRSA?
Investment account to save for retirement
2 types of PRSAs
Standard PRSA
Non-Standard PRSA
12
WHAT IS A STANDARD PRSA?
A contract with maximum charges of
5% of contributions paid and
1% per annum of assets
Investments on allowed in pooled funds
Cannot be ‘bundled’ with other products
When employer nominated no responsibility for investment performance
13
WHAT IS A NON-STANDARD PRSA?
A contract that does not have maximum limits on charges
Allows investment in funds other than pooled funds
14
KEY FEATURES of a PRSA
All PRSA products approved by Pensions Board and Revenue Commissioners
All offer a Default Investment Strategy (DIS)
Tax relief on Contributions
Portable
Transferable
Flexible
Benefits determined by amount of contributions put in and how investments perform
Benefits at retirement
15
EMPLOYEE TAX RELIEF
AGE % of earnings
Under 30 years of age
30 – 39 years of age
15%
20%
40 – 49 years of age
50 years and over
25%
30%
PRSAs may go to ARFs on retirement
Net pay arrangement applies
16
EXAMPLE
John, age 38, earns €30,000 per annum and is a 42% tax payer
He wants to contribute maximum level of his income which is 20%. This works out at €6,000 pa.
€
Yearly contribution 6,000
Tax, PRSI & Health Levy Relief 2,880
Net cost of PRSA contribution 3,120
Tax savings 2,880
17
EMPLOYERS – WHAT YOU HAVE TO DO
MUST have provided access by 15 September 2003 IF
You have NO PENSION SCHEME
OR
Your PENSION SCHEME does not cover ALL EMPLOYEES for pension benefits (“excluded employees”)
OR
You do not have an AVC arrangement
18
“EXCLUDED EMPLOYEES”
Too young to join
Too old to join
Waiting period in force
Scheme only provides death benefits
Fixed term contract
Seasonal
Part-timers
19
PRSAs – WHAT YOU HAVE TO DO
YOU MUST
Sign up to a PRSA provider for access to at least one Standard PRSA
Notify employees of the right to contribute
Allow reasonable access to advice
Allow reasonable paid time off to get advice
20
PRSAs – WHAT YOU HAVE TO DO NEXT
YOU MUST
Deduct employee contributions from payroll, if requested
Pay over employee contributions and employer contributions, if any, within 21 days of the end of the month
Tell employees and provider of amounts deducted
21
PRSAs – WHAT EMPLOYEES ARE ENTITLED TO
BY PROVIDER
Preliminary Disclosure Certificate (PDC)
Statement of Reasonable Projection (SRP)
6 monthly Statement of Account
6 monthly Investment Report
22
EMPLOYER TAX RELIEF
EMPLOYER
Fully deductible for Corporation Tax purposes
Contributions paid by employers are treated as BIK
See “A Guide to Personal Retirement Savings Accounts” on Revenue website
23
ROLE OF THE PENSIONS BOARD
Regulation/supervision of occupational pension schemes and Personal Retirement Savings Accounts (PRSAs)
Advice to Minister for Social & Family Affairs on pension matters generally
Development of private pension provision through information and awareness
Use enforcement powers to ensure compliance
24
ADDITIONAL VOLUNTARY CONTRIBUTIONS
What are AVCs?
Why make AVCs?
25
NEXT STEPS
Review your pension arrangement/requirements
You can’t hide from your financial future
Pensions Board website www.pensionsboard.ie