Presentation to SIPTU College on private pensions 6 February 2008 Ciarán Holahan

1. Presentation to SIPTU College on private pensions 6 February 2008 Ciarán Holahan Higher Executive Officer Information Unit The Pensions Board info@pensionsboard.ie

2. Agenda • The Pensions Board and The Pensions Act • Types of pensions • Why have a pension? • Tax relief – how it works • Occupational pension schemes (OPSs) • Disclosure for OPSs • Funding Standard (for DB schemes only) • Preservation and transfer options • Selecting Member Trustees • PRSAs • Family Law • Equal Pensions Treatment • Summary

3. The Pensions Board • Established by the Pensions Act, 1990 • Monitors and supervises the operation of The Pensions Act and pension developments generally • Board is responsible for regulation and policy • Promotes pensions development, information and awareness is an associated support function. • Responsible for company pension schemes and PRSAs • Operates an Information Unit and can investigate schemes and PRSAs

4. The Pensions Act Parts I & II: Preliminary & General/Establishment of the Board Part III: Preservation of benefits Part IV: Funding Standard Part V: Disclosure of Information Part VI: Trustees of Schemes Part VII: Equal Pensions Treatment Part VIII: Compulsory & Voluntary Reporting (Whistleblowing) Part IX: Miscellaneous Applications to the High Court Part X: PRSAs Part XI: Pensions Ombudsman Part XII: Cross-border schemes

5. Types of pensions • State pensions – not regulated by The Pensions Board. Enquiries should be submitted to the Department of Social and Family Affairs • Personal pensions or RACs (retirement annuity contract) – not regulated by The Pensions Board. Enquiries should be made to provider, Financial Regulator or Irish Insurance Federation. • Occupational or company pension schemes (defined benefit or defined contribution – DB or DC) • PRSAs (personal retirement savings accounts)

6. Why have a pension? The current state social welfare pension is €223.30 per week (or €11,661.60 per year) as of January 2008 …….will this be enough for you to live on ? 87% of the Pensions Board Consumer Researchsample said that the State old age pension would NOT meet their needs in retirement

7. Tax Relief – how it works The maximum contribution rate as a percentage of total pay/net relevant earnings on which you can receive tax relief is: Highest age at any time during the tax year Limit Under 30 15% 30-39 20% 40-49 25% 50-54 30% 55-59 35% 60 and over 40% Notes: Contributions will also be relieved from the PRSI and the Health Levy, if you pay these charges. For tax purposes these contributions are limited to earnings up to a maximum of €275,239 in any year. These limits refer to employee contributions only. Employers can contribute more in addition to the limits above, provided revenue maximum limits for pensions are not exceeded.

8. Tax relief – how it works EXAMPLE 1 – no pension contributions Income: €100 Tax of 20% on €100: €20 Take home pay: €80 EXAMPLE 2 – pension contributions made Income: €100 Pension contribution: €20 Tax of 20% on remaining €80: €16 Take home pay: €64

9. Tax relief – how it works • Lower tax rate (20%); Higher (42%) • Higher rate tax payers will get even more benefit • PAYE workers will benefit from PRSI and Health Levy relief also – up to 26% for lower tax band and 48% for higher tax band.

10. Tax relief – how it works • Income Tax and PRSI relief on employee contributions • Employer contributions not taxed as BIK (unless paid to PRSA) • Pension schemes do not pay income or capital gains tax on investment returns. • Part of your retirement benefit may be paid as tax-free cash sum • Pension taxed as PAYE

11. Company Pension Schemes • Also known as Occupational Pension Schemes, sponsored by employers on behalf of employees • In public sector usually ‘pay as you go’ unless commercial public sector • Occupational Pension Schemes fall into 2 categories: 1. Defined Benefit 2. Defined Contribution

12. Company Pension Schemes • Voluntary arrangements set up by employers under trust • Trustees appointed to administer the scheme in line with The Pensions Act and the Trust Deed and Rules of the scheme • Essential that trustees know the Trust Deed and Rules of their scheme • Money held in trust is separate to company funds

13. Company Pension Schemes • Pension payable on retirement, usually 65, for your lifetime and taxed under PAYE • Once-off tax free cash sum on retirement of up to 1½ final salary • A pension may be payable to your spouse/dependants/children on your death, either before of after pension commences. • A lump sum may be payable on your death either before or after your retirement • A pension and/or lump sum may be payable if you retire in ill-health See PB Information Booklets ‘What are my Pension Options?’ and ‘Women and Pensions’

14. Other issues • Preservation (2 year rule) • Options on leaving • Disclosure (statements, annual reports etc.) • Funding Standard (for DB schemes only) • Pensions Ombudsman • Remittance of contributions • Whistleblowing

15. Preservation and options on leaving • Preservation – 2 year rule • If in scheme for 2 years – then member qualifies for ‘preserved benefits’ – they cannot get a refund of contributions but are entitled to the benefit of their employer’s contribution. • Have statutory right to options

16. Options on leaving • Leave benefit deferred until retirement • Transfer benefit to scheme of new employer (can’t transfer from public to private) • Transfer benefits to ‘buy-out’ bond • Transfer benefits to PRSA subject to conditions (certificate of benefit comparison and 15 year rule) • Transfer benefits overseas (subject to Revenue conditions)

17. General disclosure regulations • Aim is to ensure members are well informed of how their scheme operates and what benefits they are entitled to. • Some information is provided automatically and some must be provided on written request See appendix to PB Information Booklet ‘What do you know about your pension scheme?’

18. General disclosure regulations • Explanatory booklet – automatically within 2 months of joining scheme and within 4 weeks of written request • Trust Deed and Rules – within 4 weeks of written request • Annual member benefit statement – automatically once every 12 months • Leaving service options letter – within 2 months of leaving employment

19. Funding Standard • All DB schemes must provide AFC (actuarial funding certificate) to The Pensions Board every 3 years • AFC should state whether the scheme can meet the Funding Standard of The Pensions Act, i.e. does it have enough assets to meet all its liabilities if it were to wind-up? • If there is a deficit a funding proposal must be submitted to The Pensions Board stating how the deficit will be corrected within 3 years or in a longer period if agreed by the Board.

20. Funding Standard • The annual report must include the latest AFC and in the years between each AFC an intervaluation statement must be made by the actuary to state whether they believe the scheme is still complying with the Funding Standard • If a scheme winds up with a surplus then the Trust Deed and Rules will state who gets the surplus, i.e. the employer, the members or a combination of both. • If a scheme winds up in deficit the benefits are paid in order of priorities as set out in The Pensions Act

21. Order of priorities on wind-up • AVCs • Pensions in payment • Active and deferred members • Revaluation of pre-1991 benefits • Revaluation refers to revaluing deferred DB benefits each year by 4% or the Consumer Price Index – whichever is lower. • Expense and cost of winding-up the scheme (i.e. paying actuary and administrators) can be paid first if the Trust Deed and Rules allow for this.

22. Remittance of contributions Section 58A of The Pensions Act requires: • Contributions deducted must be paid by the employer to the within 21 days of the end of the month that they were deducted. • Trustees must invest contributions within 10 days of above. • See FAQs on www.pensionsboard.ie • Report to the Board if there is problem with remittance

23. Selecting Member Trustees • Ad hoc arrangements • Selecting Member Trustee Regulations are available to: • Qualifying schemes (50 or more qualified members, i.e. active or pensioner members) • Process can be started by trade union representing 50% of active members, 15% of qualified members, or the employer • Standard and alternative arrangements See PB information booklet ‘Selecting Member Trustees’

24. Personal Retirement Savings Accounts (PRSAs) • For employees, self-employed, homemakers, carers, unemployed or any other category • Members of OPSs can make AVCs to a PRSA • Two types –Standard PRSA and Non-Standard PRSA • Standard has a cap on charges of 5% of each contribution and 1% of the assets per year • Can take 25% tax free on retirement • Can put money in Approved Retirement Fund (ARF) or keep in pension following retirement instead of buying an annuity subject to certain conditions – further info available in ‘What are my pension options?’ booklet.

25. Employers must play their part Access for all Employees • By law an employer must provide ALL employees with some form of access to a pension, whether they are in full-time, part-time, temporary, contract or casual employment. • All employers regardless of the size of their workforce areobliged to provide access to a Standard PRSA if those employees fall into the category of “excluded employees” (details available on the Board’s website).

26. Family LawPension Adjustment Orders (PAOs) • PAOs do not apply for judicial separations or foreign divorces; • if granted before 1/08/1996, • Irish divorces granted before 27/02/1997 • for non judicial separations i.e. separation by agreement. • A PAO designates part of the pension benefits • to a non member spouse • or person representing a dependent child.

27. PAOs - continued • Separate PAOs can be made in relation to; • retirement benefits (benefit payable to a member spouse) • and contingent benefits (e.g. Death in service benefits). • PAO in relation to contingent benefits must be made with 12 months of judicial separation or divorce. • General info on a spouse’s pension can be sought through the trustees of the pension scheme. • Personal info will be given on your spouses consent and if no consent is given you may apply for a court order for info to be released.

28. PAOs - continued • Court rules on 2 key factors – relevant period and relevant percentage. • A ‘designated benefit’ is awarded and will commence at same time as member spouse unless an ‘independent benefit’ is requested, i.e. transfer of a designated benefit either within the scheme or to another scheme, to a bond, or a PRSA. For further information see PB Information Booklets on Family Law and Women & Pensions

29. Equal Pension Treatment • Original The Pensions Act applied to equal treatment on gender grounds only • As of 2004 it applies to • 9 discriminatory grounds, with a • number of exceptions • Fora for redress – The Equality Tribunal and Circuit Court • Pensions Board may refer certain matters to Equality Tribunal • See information booklet ‘A brief guide to Equal Pensions Treatment’

30. Equal Pension Treatment Discriminatory grounds: • Gender • Marital status • Family status • Sexual orientation • Religious belief • Age • Disability • Race • Membership of Traveller community

31. Changing Demographics

32. More information….. www.pensionsboard.ie See Information booklets,‘Guide to Pensions’ and Pensions Calculator For enquiries contact: info@pensionsboard.ie Information Unit: 01 613 1900

33. More information….. The Pensions Board publishes a Trustee Handbook which can be ordered from info@pensionsboard.ie The Pensions Board approves trustee training courses – see www.pensionsboard.ie

35. More information….. Financial Regulator www.itsyourmoney.ie Revenue www.revenue.ie

36. Summary • OPSs – in trust. Trustees must know the Trust Deed and Rules for their scheme • Disclosure requirements • Preservation • Selecting Member Trustees • Write to trustees/pensions company with enquiries. Contact The Pensions Board if you members are not getting the information they are entitled to or if there is a problem with the scheme • Employers’ PRSA obligations • Booklets, website and information unit of the Board

37. Thank you for your attention! Any questions???