Attention, executive pension holders! You're facing a crucial deadline in April, and it's time to take action to avoid unnecessary costs and complications.
The clock is ticking for thousands of retirement savers with self-administered pensions, also known as one-member schemes or SSAPS. These schemes are about to face a new set of EU regulations, and the consequences of non-compliance are significant.
The new rules, known as IORP II, aim to ensure the soundness and protection of occupational pension schemes. However, they are seen as overly burdensome for small schemes, requiring detailed reporting, annual audits, risk management, and restricted investment options.
Many owners of these schemes have already taken action, moving their funds to alternative pension vehicles like non-standard PRSAs or joining master trusts. But here's where it gets controversial: experts fear that thousands of pension savers are still unaware or unprepared for this upcoming change, even though it was announced five years ago!
According to the Pensions Authority, there were still 90,000 such schemes operational as of last September. So, what's the hold-up?
The new regime is considered uneconomical for most, with limited providers offering these products under the new rules. Fergal Roche, director at Davy, puts it simply: "You'd be paying significant fees over and above what's worth."
Glenn Gaughran, head of business development at Independent Trustee Company (ITC), adds that diversification becomes "cumbersome" under IORP II, with restrictions on investments in unregulated products like property, loan notes, and renewable energy.
So, SSAPS members, the time to act is now! But why have so many been hesitant to make a decision?
Roche explains that it's a tricky and laborious process, involving financial advice and potentially complex investment structures. There are also pension adjustment orders and overseas transfers to consider.
"It's not as simple as ticking a box and moving to a retirement bond," Roche says. "It can be an arduous process, and the execution can be challenging."
But the consequences of inaction are even more daunting. If SSAPS funds don't move by April 21st, they will be subject to the full compliance and risk management requirements of IORP II, resulting in higher costs.
ITC, for example, quotes costs of around €5,000 to run an IORP II-compliant scheme, with some annual costs reaching five figures. And if trustees resign, as Gaughran suggests ITC may have to do, the pension holder will be left in a difficult situation.
"It's not a great outcome," Roche says. Depending on the rules, some schemes might transfer you to another structure, but there could also be sanctions for non-compliance.
So, what are your options? SSAPS and executive pension holders have a few choices:
- Transfer to a buyout bond (BOB) if you're not continuing to fund your pension. This is accessible from age 60.
- Consider a PRSA, which is the most popular option for those still contributing to a fund. Non-standard PRSAs offer flexibility in asset choice, but this is currently under review by the Pensions Authority.
- Join a master trust, which brings multiple schemes together under the new regulatory regime. While it offers more rigid investment options, focusing on regulated markets, it may be more attractive in terms of funding, allowing contributions similar to older schemes.
- Retire the SSAPS and put the funds into an approved retirement fund (ARF).
The key message here is to take action now. Don't let the deadline pass without making a decision, as the consequences could be costly and complex.
And this is the part most people miss: the new rules are an opportunity to review your overall financial situation and ensure your retirement savings are protected and optimized.
So, are you ready to take control of your financial future? The choice is yours, and the time to act is now!
