TEAGASC

2 September 2004

Aongus HorganAssistant Head of Information & Training

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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

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OCCUPATIONAL PENSION SCHEMES IN IRELAND

112,685 occupational (i.e. employers) pension schemes

724,333 members in occupational pension schemes

Overall membership is increasing

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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

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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%

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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

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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

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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

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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

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WHAT IS A PRSA?

Investment account to save for retirement

2 types of PRSAs

Standard PRSA

Non-Standard PRSA

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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

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WHAT IS A NON-STANDARD PRSA?

A contract that does not have maximum limits on charges

Allows investment in funds other than pooled funds

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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

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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

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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

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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

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“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

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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

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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

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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

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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

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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

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ADDITIONAL VOLUNTARY CONTRIBUTIONS

What are AVCs?

Why make AVCs?

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NEXT STEPS

Review your pension arrangement/requirements

You can’t hide from your financial future

Pensions Board website www.pensionsboard.ie