Retirement savings option closed to business owners !
What has happened ?
Zurich, Aviva, New Ireland, Standard Life and Irish Life have all stopped opening new single member pension schemes.
What are these single member pension schemes ?
These schemes are aimed at business owners. Typically, business owners do not save for their retirement early in their career. Focus is on investing in the business. If the business thrives, larger amounts may be available for retirement saving in later years.
With this in mind, single member arrangements allows tax relief on higher amounts than would typically be possible in an occupational pension scheme. Also there is flexibility to adjust contributions up and down as the business has good and bad years.
Broader investment is also permitted in such schemes. For example, subject to certain rules, property investment may be possible.
So why is this all stopped now ?
An EU wide directive on the activities and supervision of institutions for occupational retirement provision (IORP II) was adopted in 2016. It was signed into Irish law on the 22nd April 2021.
IORP II places heavy compliance requirements on such schemes to the point where they become untenable.
Is there a workaround ?
The industry had been aware of this implication for quite a while. However, the expectation had been that the Pensions Authority would allow an extension of the deadline from 1st July. There was even hope that the extension would dovetail with the introduction of a new Private Retirement Savings Account (PRSA) which would have much the same features as the single member arrangement.
However, the Pensions Authority has taken a much harder line. They have threatened sanctions up to prosecution of Trustees involved in any new single member schemes. The insurance companies felt that they had no option but to withdraw the product.
And what about legacy one member schemes ?
The schemes which were put in place before the signing of IORP II into Irish law on 22nd April 2021 have a derogation until 22 April 2026 to meet compliance rules.
What does the future hold ?
There will now be huge focus on the new PRSA product that will meet the needs of business owners. It will need to be approved in the upcoming Finance Bill. And then it may be ready for use by January 2023.
What will I do if this affects me ?
The value of good advice is more important than ever. AM Financial is a pensions advisor based in Dublin. Contact us to understand what is going on and how it affects your retirement savings plan.