Colm Fagan’s Post

As I wrote yesterday, the Pensions Council rejected my AE proposal despite the independent expert (that it appointed) agreeing that it could MORE THAN DOUBLE the size of workers' pension pots. The Pensions Council refused to engage with me when deliberating MY proposal, so I have to resort to LinkedIn to rebut its criticisms. I'll take each in turn. In this post, I'll deal with what is probably the most ridiculous of all (although there are a few candidates for the title), namely that "Council did not find any precedents for an investment approach akin to the proposal in global, national, or provincial pension provisions". In other words, how in God's name could Ireland come up with an idea that hasn't been thought of somewhere else first? I won't bother dignifying that question with a response. There is a serious underlying question, though. My proposal is not rocket science, so why didn't some other country think of it years ago if it really can MORE THAN DOUBLE THE SIZE OF WORKERS' PENSION POTS (I love putting those words in capitals!!!)? There could be a sinister reason. I have heard it said (I don't know if it's true) that, when NEST was being launched in the UK, the insurers, pension brokers, pension consultants, asset management companies, etc., lobbied the (Tory) government in an effort to stop NEST from eating their dinners. The compromise agreed was that NEST would look after the accumulation stage (when there are no margins for providers) but that, when workers got to retirement, they would then be turfed out, to be cannon fodder for advisers, insurers, consultants, brokers, asset managers, etc., keen to get their hands on the juicy lump sums emerging at retirement. Our DSP plans the same approach. Under its proposals, workers will be turfed out at retirement and forced to hawk their savings pot around the market. I hasten to add that I'm not suggesting that anything untoward might have influenced the Irish government's decision.

Concerns about the abolition of the pension lifetime allowance There was cautious optimism when the UK government suspended the pension lifetime allowance (LTA) tax charge, with plans to remove the allowance completely from April this year. The LTA, which stood at £1,073,100 when removed from the tax system, had stopped many people working because of excess tax charges above that level. On the surface, the effective suspension and forthcoming removal of the LTA appears to reopen pension funding doors, or does it? New draft legislation Draft legislation released by HMRC in December 2023 highlighted the forthcoming abolition of the LTA but also confirmed three additional allowances. These will be known as:- ·       Lump Sum Allowance (LSA) ·       Lump Sum and Death Benefits Allowance (LSDBA) ·       Overseas Transfer Allowance (OTA) The standard LSA will be £268,275, although those with LTA protection may have a higher figure. The LSDBA will be £1,073,100, the same level as the LTA, with the OTA set at the same level as an individual's LSDBA. Confused? Is this a case of simplification gone wrong? When HMRC announced the phasing out of the LTA, there were initial cheers amongst pension advisers and pension holders. However, as always, the devil is in the details, and the announcement of the LSA, LSDBA, and the OTA have complicated what appeared to be a relatively simple adjustment to regulations. We also have the ongoing consultation about the "pension pot for life", which also appeared very positive on the surface but has been called into question by many pension advisers. Are there any more potential complications on the way? Labour would seek to reverse changes The Labour Party, a potential government in waiting, has confirmed that they would look to reverse recent pension regulation changes and re-introduce the previous limits. Whether it would be quite as simple as that, with hundreds of pages of legislation per act, remains to be seen. How do pension advisers stay sane in this ever-changing situation? Conclusion Are governments, politicians and HMRC guilty of giving with one hand, then taking back and more with the other? It's essential to take advice regarding your pension assets because, as you can see, the situation is becoming ever more complicated. Action taken, or not taken today, could considerably impact your pension fund years or even decades down the line.

Parliament will be dissolved tomorrow & any legislation which has not been finalised before then will fall. But what does that mean for the many outstanding pensions consultations, bills & draft regulations? And what can we expect from the new Parliament when it is eventually formed? ▫ Of most immediate interest (and frustration!) for trustees will be any resulting delays to the DB Funding Code. While the funding regulations themselves have come into force & will apply to valuations from 22 September, the Code needs to be laid before Parliament for 40 days before it comes into effect. With only 80 days between Election and 22 September, timing feels a little tight! ▫ Also affected will be the proposed legislative framework for the authorisation & regulation of DB consolidators, or “superfunds”. The DWP confirmed in July last year that it would prepare primary legislation to introduce this “when parliamentary time allows”, with the Regulator to produce an enforceable code to be followed by authorised consolidators. Clearly, time has not allowed so far, & we do not expect this to be a priority when the new Government is formed. ▫ The FCA was due to consult this Spring on detailed rules for a new joint VFM framework for DC pensions, aimed at improving transparency & the delivery of VFM in the market. The new framework was being developed jointly with tPR & the DWP. However, it seems likely now that this will be delayed until at least the Autumn. ▫ Another current proposal which will be impacted is the creation of a public sector consolidator for DB pension schemes, to be run by the Board of the PPF, acting (primarily) as an alternative to buy out for schemes unattractive to commercial providers. ▫ Of particular interest to employers is the recent DWP consultation on payment of pension scheme surplus funds. If reform were to take place, it would make it easier for employers to extract surplus from the pension schemes they fund. The consultation only closed in April so any regulatory change is unlikely to be at the top of the new Government’s action list. The points highlighted are just the tip of the iceberg. Other areas where regulations are awaited include finalisation of the changes to the notifiable events regime and GMP conversion. Perhaps the biggest elephant in the room, though, is what the Election means for the abolition of the Lifetime Allowance, which took place last month. In March 2023, Labour stated that it would reinstate the LTA were it elected. It has been much quieter about these reforms since that time, and it remains to be seen whether this will be one of its election pledges. Any reinstatement will be complex (to say the least!). Whatever the outcome in July, there will be a period of uncertainty surrounding many aspects of proposed pensions reform. It seems we might find ourselves sitting on our hands for many more months to come! Please get in touch with the Shoosmiths pensions team if you want to discuss!

The IFS has published its comments on "How should pensions tax relief be reformed, and could it be done in ways that raise revenue?" It states that "Capping up-front income tax relief should be avoided...Tempting as it may be, there is no coherent logic to making relief on contributions flat-rate while continuing to tax pension income at the individual’s marginal rate. The same logic that says it is ‘unfair’ for people to get higher-rate relief on contributions and pay only basic-rate tax on withdrawals would presumably imply that it is equally ‘unfair’ for people to get basic-rate relief on contributions and pay no tax on withdrawals if their income in retirement was below the personal allowance – yet that argument is never made. And restricting relief on contributions while leaving the taxation of pension income unchanged clearly would be unfair on those (few) who are higher-rate taxpayers both while in work and in retirement: they would in effect be taxed twice on the same income, creating a large penalty for saving in a pension." It adds "Pensions should be subject to inheritance tax...Unlike with housing wealth or other savings, if someone dies and passes on a pension pot to a non-spousal heir, the pension does not count as part of their estate for inheritance tax purposes. Ending this inequitable treatment could raise several hundred million pounds a year in the short term, rising quickly thereafter" Furthermore, "The 25% tax-free component should be targeted towards those with smaller pensions, not those with higher incomes...First, the 25% tax-free component subsidises further pension saving even for those who already have large pensions. While there is a case for encouraging people to save at least a certain amount for their retirement, it is hard to justify continuing to subsidise extra saving for individuals with pension wealth little short of £1,073,100. " Concerningly for employers it suggests "Reform the generous NICs treatment of employer pension contributions...Different ways forward are required for employer and employee NICs. It would be sensible to move towards levying employer NICs on employer pension contributions....In the case of employee NICs, there is a good case for moving towards a system with up-front relief for employee, as well as employer, pension contributions. In return, employee NICs would be levied on private pension income. In the long term, such a change could raise substantial revenues"

Social Protection Minister Heather Humphreys has unveiled plans for an auto-enrolment pension scheme set to commence in January. By 2025, the State will invest €138m, rising to €760m by Year 10. The aim? To introduce 800,000 workers to pension savings and address the 1 in 3 private-sector workers currently without a pension. 🔑 Key details: 👥 Workers aged 23-60 earning over €20,000/year will be automatically enrolled. 💰 Initial contributions are 1.5% of gross income, matched by employers and topped up by the State. 📈 Contributions increase by 1.5% every three years, capping at 6% by Year 10. 💸 For every €3 saved, the State adds €1. 🛡️ Minister Humphreys defended the costs, highlighting the long-term economic benefits of increased spending by retirees. 🏦 Operated by the new National Automatic Enrolment Retirement Savings Authority, the scheme aims for self-sustainability through participant fees. While voluntary, workers will need to "opt out" rather than "opt in," with a default investment strategy for those who don't choose. #pensions #financialsecurity #Ireland Link to the full article by below:

There has been speculation that Rachel Reeves, the UK Chancellor, might be considering a significant tax change targeting pensions. Reports suggest that this could take the form of scrapping employers’ National Insurance (NI) relief on pension contributions made via salary sacrifice schemes. Currently, employers benefit from a 13.8% National Insurance exemption when they contribute to pensions on behalf of employees under these schemes. If implemented, this change could potentially raise around £23.8 billion annually, which would help plug a £22 billion gap in the budget. However, this proposal has sparked concern, especially about its impact on pension savings and small businesses. Critics, including former pensions minister Steve Webb and other financial experts, warn that such a move could discourage pension contributions and create challenges for businesses, particularly small ones that might struggle to afford the increased costs. Reeves is reportedly exploring this option because Labour has committed not to raise income tax, National Insurance, VAT, or corporation tax. Therefore, she must find alternative ways to raise revenue. Nonetheless, the policy would contradict Labour’s own commitment to improving pension savings, leading to skepticism about its feasibility and long-term benefits. At this stage, nothing is confirmed, and the Treasury has declined to comment on the speculation.

THE POLITICS OF PENSIONS With most political parties now having published their manifestos, The Society of Pension Professionals Head of Policy & PR, Phil Hall takes a look at what each means for the world of pensions. State pension Here the parties are closely aligned with Plaid Cymru, The Labour Party and the Liberal Democrats promising to keep the triple lock; the Green Party of England and Wales promising that pensions will always be uprated in line with inflation and The Conservative Party guaranteeing that both the State Pension AND the tax-free allowance for pensioners always rise with the highest of inflation, earnings or 2.5%. The Environment Regarding climate change and pensions, perhaps unsurprisingly, the Green Party state that UK pension funds will need to remove fossil fuel assets from their investment portfolios by 2030. Similarly, both Labour and the Liberal Democrats state that they will require pension funds and managers to show that their portfolio investments are consistent with the 1.5°C goal of the Paris Agreement. The Conservatives were silent on the issue. Gender The Liberal Democrats are the only party to make a commitment to tackling the gender pensions gap. Plaid Cymru would like to see compensation payments of at least Level 5 of the ombudsman scale for all WASPI women, amounting to between £3,000 and £9,950. Labour and the Conservatives are silent on these issues. Tax relief The Conservative Party promised to maintain tax relief on pension contributions at their marginal rate, Labour and the Liberal Democrats make no comment whereas the Green Party promise to scrap the higher (40%) and additional (45%) rates of pension tax relief whilst maintaining the 20% basic rate. There is immense complexity involved in such a decision. For instance, the need to establish what tax rate would apply on the pension income received e.g. receiving 20% tax relief on contributions but then paying 40% tax on retirement income may well result in a decrease in retirement saving. There would also be issues around salary exchange - which would require some kind of charge on employer contributions – and the impact on DB schemes would be substantial, potentially resulting in a tax charge on tens of thousands of public sector workers. Armed Forces The Conservatives and Plaid Cymru have both committed to introduce an income disregard for the War Pensions and Armed Forces Compensation Scheme, so that they aren’t considered as income for the purposes of benefits and pensions. Mineworkers Both Labour and Plaid Cymru make commitments to addressing issues with the Mineworkers' Pension Scheme. With both promising to transfer the surplus money taken from the miners back to those former workers and their families. #pension #pensions #spp #GeneralElection2024 #UKElection #policy #publicpolicy #savings #retirement

We are seeing increased speculation that the Chancellor will make changes to pensions taxation to raise revenue in the upcoming October Budget, but what could be on the table? We don't have a crystal ball but the current pension system provides a number of tax breaks which does lead to the question of reform. Any changes would need serious consideration as insufficient support for pension saving could risk inadequate resources for the future and greater reliance on the state - something the government clearly wants to avoid! ❓ The annual allowance - the maximum relievable amount that could be paid into a pension increased last year from £40,000 to £60,000, will the government consider this too generous and revert the allowance? ❓ Tax relief - this one seems to pop up every year, would the government move to a flat rate of tax relief on pension contributions as opposed to aligning to an individual's marginal rate of tax? There are reasons this has not been done historically, the logistics and impact of implementing this for public sector workers requires careful planning. Also, would this be accompanied by a change to tax relief applied to employer contributions? ❓ Tax free cash - we have seen headline grabbing reports of tax free cash being pulled entirely, however coming back to the point about ensuring individuals don't feel demotivated about saving for their retirement, would this be realistic? With the introduction of the Lump Sum Allowance (formerly known as Tax Free Cash / Pension Commencement Lump Sum) earlier this year, the tax free cash sum that can be drawn from most pensions is now explicitly confirmed as a £ amount rather than a %. Does this lend itself to being adjusted more easily i.e. the current Lump Sum Allowance is £268,275, could it be reduced to bring it down to say £200,000? Anything beyond the lump sum allowance is subject to an individual's marginal rate of tax when they draw it so this could drive additional revenue but likely over a much longer timeframe rather than being a 'quick win'. ❓ Death benefits - pensions have a number of valuable benefits when it comes to how the funds can be passed on when you die. Usually the value is outside an individual's estate for IHT purposes and depending on whether the individual dies pre or post 75, there can be tax efficient ways to pass funds on to multiple beneficiaries potentially free of tax. This means that many pensions have become valuable legacy planning tools, but this hasn't always been the case. Pre April 2015, the tax position on death was quite different, so could we see some form of tax being reintroduced where the pension funds pass to someone other than a spouse or dependant? The key to dealing with any future changes is to ensure you understand where you are now and then to consider how your plan can pivot if it needs to. #pensions #retirementplanning #taxplanning #inheritancetax #budget https://lnkd.in/emtuk5_S

Did you know, according to a 2023 survey, 32% of workers aged between 20 and 69 are not signed up to a private pension?  Last week, the Cabinet approved a Bill that is designed to create an auto-enrolment pension system in Ireland, due to commence in January 2025. But what does this mean for you as an employer? ➡️ All employees aged between 23 and 60 earning more than €20,000 per year will fall under the remit of the auto-enrolment scheme ➡️ The cost will depend on how much your employee will earn - they will contribute 1.5% of their gross salary for the first three years, later increasing to 6% over the years  ➡️ Their employer will match their contributions, and the State will contribute €1 for every €3 they pay. In other words, if they contribute €675 in year one, they will end up with €1,575 taking your employer contributions and the State's incentive into account A lot of employers are getting ahead of this impending issue now and seeing it as an opportunity to engage staff proactively. To find out more and prepare for auto-enrolment, please contact us here https://lnkd.in/ee8A37xb https://lnkd.in/e7AcpN8Z #autoenrolment #InsightPrivateClients #pensions #privatepensions

Finance Act 2022 removed constraints whereby Employer contributions to Personal Retirement Savings Accounts (PRSAs) were previously subject to a Benefit in Kind charge and contributions limited to an employee's salary or years of service. Therefore, company directors, business owners, and key employees can now receive unlimited contributions to their PRSAs subject to a ceiling of €2m, significantly enhancing their ability to plan for retirement. Jim Stapleton CFP®, Head of SME Financial Planning commented that at "a recent Oireachtas Finance Committee meeting recently, Revenue Commissioner chairman Niall Cody told the meeting that he “was concerned” with the amendment and that this “concern has been shared” with the Department of Finance. The Department of Finance is monitoring the relaxation of the funding changes closely." So for now, employer contributions to Personal Retirement Savings Accounts (PRSAs) continue to remain exempt from the BIK and company directors, business owners, and key employees can still receive unlimited contributions to their PRSAs. For the company, it can pay up to €2m into a PRSA and claim full Corporation Tax relief immediately. If you have any pension funding queries, contact Eolas Money and we will be delighted to help.  #retirementplanning #wealthcreation #eolasmoney Jim Stapleton CFP®