The ever-evolving pensions landscape in Ireland

The pensions environment has undergone a huge amount of change over the last number of years and 2023 appears to be going to the same direction.

 

The “institutions for occupational retirement provision” (IORP II) Directive was transposed into Irish legislation in 2021. At that time, it was decided to give existing one-member arrangements (OMAs) a five-year exemption, but not to extend the exemptions to any newly created one member arrangements like Executive Pensions Plans.

New OMAs used group trusts as a means of conforming to the amended laws, but regrettably the Pensions Authority, was not entirely satisfied with these arrangements.

 

Due to this, pension providers decided to remove the well-known executive pensions plan (EPP) product from the market. In the end, the industry was severely harmed by the decision to incorporate the directive into Irish legislation without exempting OMAs. For many business owners and Directors trying to save for retirement, this left a huge gap.

In response, the market created retail master trusts (RMTs) to cater for these one-member arrangements.

 

A derogation applies to one-member arrangements that were created before April 22, 2021, and after three years they must be fully compliant with IORP II.

 

Those arrangements founded after this date must either have switched to an RMT or a PRSA product by June 30th, 2023, in order to be entirely compliant.

 

In order to transition to a master trust or PRSA by the end of 2023, group schemes with less than 100 active and deferred members must have had a formal commitment from the trustees prior to the start of 2023.

 

The RMT was established in November 2022 and the Finance Act was enacted in December 2022. The PRSA underwent considerable adjustments as a result of the Act, which addressed the BIK concerns that had made the PRSA less desirable than the previous EPP product.

 

Employer contributions to a PRSA would no longer be considered employee contributions for income tax purposes as a result of the BIK reforms as of January 1st. 2023.


Even though these modifications were favourably received, the PRSA still needs additional reform and modernization.

 

These reforms include but are not limited to:


1. Allow the option of accepting retirement benefits from a PRSA as a salary and service lump sum in addition to the 25% fund option.
2. Permit the employer to make a BIK-free contribution to a section 785 life insurance policy purchased by an employee in order to provide death in service insurance for that employment.
3. Permit early pension benefits due to illness to be taken at any time, adopting the same Revenue Practice definition that now governs schemes.
4. No matter the PRSA holder’s current job situation, it should be possible to access benefits financed by a former employer after age 50 in cases where that employment has ended.
5. Lift limits on charging.

 

Please find more information relating to ‘Retirement funding opportunities following recent changes to PRSAs‘ on the written by MOJO Finance and published on the Leinster Leader in April 2023.

 

The Interdepartmental Pensions Reform and Taxation Group presented a report in December 2020 that made several key pension reform recommendations, including the following:

 

1. Drawdown in the scheme.
2. Buy Out Bonds will be replaced by PRSA as a vehicle.
3. ARF to be swapped out with PRSA.

 

The implementation of several of the recommendations would concern many where most would like to see retirement plans that allow for in-plan drawdown have a mandatory advisory mechanism in place. Also, there is much disagreement that an arrangement akin to a PRSA can replace the ARF.

 

In accordance with an EU Regulation, the Pan European Personal Pension (PEPP) was created in 2019. Ireland became subject to the PEPP Regulation on August 28, 2022, and the Central Bank was designated as the competent body.

 

The PEPP allows members to switch providers, both domestically and internationally, with the goal of introducing a cost-efficient, secure, and portable pension product into the European pensions and insurance markets. The Finance Act made provisions for tax relief on contributions to a PEPP similar to those for a PRSA.

 

The General Scheme for the Automatic Enrolment Bill was published in October 2022 and heralds the impending implementation of automatic enrolment.

 

The proposal included a wide range of topics, including opting in and out, employer obligations, complaints, the structure and operation of the central processing unit, and receiving benefits.

 

The ambitious target of January 1, 2024, for the first contributions is still up in the air, but as the Bill is discussed in committee, it is becoming less probable that it will be put into effect by that time.

 

With the new PRSA product come having largely come online from most providers this month (May 2023) and the required reorganization of all EPPs and SSASs by April 2026 a significant influx of business is anticipated from consumers and business owners seeking high-quality retirement advice.

 

Either way, it makes sense for all to engage with their financial advisor well in advance of their relevant deadline.

MOJO Finance are happy to advice further and to facilitate changes for those seeking to comply with obligations and to maximise retirement funding opportunities.

 

Please feel free to book a Pensions & Retirement consultation on the MOJO Finance website.

The ever-evolving pensions landscape in Ireland