TEAGASC 2 September 2004 Aongus Horgan Assistant 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 Annuity Contract/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 product Regulated 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 – 1/60 th 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 % 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

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 contribution6,000 Tax, PRSI & Health Levy Relief2,880 Net cost of PRSA contribution3,120 Tax savings2,880

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