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OCTOBER 2020 SURVEY Pensions BRENDAN KENNEDY Pensions Regulator p56 NIALL FITZGERALD Zurich Life p60 PAULA FINLAY Davy Pensioneer Trustees p62 JOHN GROARKE Irish Life p63 DECLAN MAHER Bank of Ireland p64 GARY CONNOLLY Davy p66 JOHN GETHIN KBC Life and Pensions p68 JAMES KAVANAGH Trustee Decisions p71
B P S URVEY P E NS IONS
Pension Schemes Face More
Intrusive Regulator Oversight
Government enthusiasm has diminished for meeting a 2022 target date for compulsory
pension auto-enrolment. However, new enforcement powers are imminent for
the Pensions Regulator, writes Emily Styles
T
here is not much consistency
across Ireland’s small and
medium businesses
surrounding how much they
contribute to employee pensions.
There is no legal obligation to do so,
and though government has promised
compulsion in the coming years, for
the moment such contributions are
entirely voluntary.
Looking at some of the medium-size
enterprises featured among this year’s
EY Entrepreneur of the Year
contenders (see page 36) highlights
the lack of consistency. Among the
seven companies whose accounts
detail salaries and pension costs, the
employee pension payment as a
percentage of wages and salaries is
highest at General Paints Group
Brendan Kennedy, Pensions Regulator
(19.7%), followed by Ard Ri Group
(7.7%), M50 Truck & Van Centre
(3.2%), Errigal Contracts (2.6%), if they are not already in an pension tax relief regime would be
Kiernan Structural Steel (2.1%), and employer’s pension scheme. adjusted. At the moment the net cost
Carlow Craft Brewery (0.1%). West Proposed contribution levels for this of a €100 pension contribution for an
Cork Distillers, with a €1.9m payroll, compulsory private pension were set individual paying 40% income tax is
doesn’t detail any pension payments at 6% from employees, 6% from €60, while for people on the 20% rate,
for its 53 staff. employers and a 2% direct the net cost of the same contribution
This random evidence suggests that contribution from the state. These is €80. Under the Strawman proposal,
many SMEs are in for a land when contribution levels would be phased all employees contributing €100
pension auto-enrolment (AE) is finally in, rising gradually over six years from would pay the full cost, and the state
introduced. Until recently, a starting point of 1%, 1% and 0.33%. would top up pensions rather than
government was promising that AE The department’s latest proposal allowing an immediate tax benefit.
would be rolled out from 2022, after talked about a phase-in period of ten Outside of the corporate world of
having outlined the concept in 2018. years, starting at 1.5% from employees defined benefit pensions, the main
The Department of Social Protection and employers and increasing by 1.5% driver for the pensions industry in
updated the pensions reform roadmap increments every three years. There Ireland is professionals, business
last year, specifying that AE will mean was no clarity about the level of state owners and other high earners
people in employment aged between contribution. making regular, substantial pension
23 and 60 and earning at least Under the government’s original AE payments to avail of the 40% tax
€20,000 a year will be auto-enrolled ‘Strawman’ proposals, the current break. If the pension tax incentive is
equalised for all taxpayers, then that is
not going to suit a very large vested
interest.
‘Not increasing the pension age as planned to Apart from that industry resistance,
there’s the Covid factor too. Employers
67 in 2021 will add c.€575m to annual in some sectors are under enormous
government spending’ financial strain, and the last thing
they need is a compulsory extra cost.
56 BUS INES S PL US O CT OB E R 2020
B P S UR VE Y P E NSI O NS
Social Protection minister Heather That increase has been stalled trustees attached, and Pensions
Humphreys told the Dáil in July that pending a review by a new Regulator Brendan Kennedy is
the government recognises the Commission on Pensions. advising trustees that they can expect
exceptional strain that both employers The Irish Fiscal Advisory Council more oversight in the years ahead.
and employees are now under as a commented recently that the pension An EU regulation called IORP II
result of the Covid-19 emergency. age has not followed rising life boosts the powers of the Pensions
“The government will therefore seek expectancy, and numerous official Authority to ensure proper
to gradually deliver the auto- reports have not led to change. “Not management of retirement savings.
enrolment scheme,” the minister increasing the pension age as planned Kennedy says that transposing the
stated. “Full implementation of the in 2021 would add up to €575m to directive into Irish law is complex, but
AE scheme by 2022 was extremely annual spending, with this cost he’s hopeful the process will be
ambitious. The AE programme steadily rising over time. Average life concluded by the end of 2020.
management office in my department expectancy at age 65 increased from Addressing the Society of Actuaries
will work on developing options for 79 in 1980 to almost 85 in 2016, and in Ireland earlier this year on
the government to consider, in order is projected to rise to 89 by 2050,” oversight of DB schemes, Kennedy
that the system can be introduced on IFAC stated. noted that the objective of a defined
a phased basis. Until decisions have benefit scheme is to pay the benefits
L
been made on these options, it is not onger life expectancy isn’t just an set out in the scheme rules. “Our
possible to give a more detailed issue for government funding of supervision must therefore be forward
timeline for the introduction of the the State Pension. It also affects looking,” he said. “That means not just
AE scheme.” private defined benefit (DB) and looking at whether the scheme is
Kicking the can down the road defined contribution (DC) pension solvent today but whether it will be
stores up trouble for politicians. In the schemes and their 880,000 members. solvent and in a position to pay the
general election earlier this year, The Pensions Authority regulates promised benefits, when the time
pensions emerged as live issue on the 700 DB schemes and c.9,000 group comes.
doorsteps, with the qualification age DC schemes, as well as c.66,000 “Trustees must also be forward
for the contributory State Pension due active non-group DC schemes. All looking in how they manage the
to be raised to 67 from January 2021. these pension arrangements have continued on page 58
B P S U R VE Y PE NS IO NS
scheme, and must always have in DEFINED BENEFIT saying throw Mary or Pat off the
mind the ultimate objective of good trustee board because they don't know
member outcomes. Our supervision Scheme Schemes Active enough. We don't have a problem
Size Members
will be looking at weaknesses and with lay trustees, but the expertise of
0 to 50 276 3,870
deficiencies in the situation and the trustee group as a whole must be
51 to 99 52 3,670
management of schemes, and whether commensurate with the responsibility.
100 to 500 97 23,250
they represent threats to the payment The question for trustees must be do
501 to 1000 22 15,440
of member benefits. they have sufficient expertise and all
1001+ 38 454,580
“What too often happens at present the other qualities required to make
Total 485 500,810
is that trustees rationalise the current decisions on behalf of their
situation of their scheme. If the colleagues.”
trustees’ priority is merely to obey the DEFINED CONTRIBUTION For Kennedy, cost enters the
regulations, they are unlikely to be equation too. “Obviously the more of
fully discharging their obligations to Scheme Schemes Active the pension contributions that go on
Size Members
safeguard the interests of members.” costs, particularly in DC schemes, the
Non-Group 66,200 66,200
IORP II will usher in a much more lower the pension for members. Post
1-10 5,767 17,240
interventionist approach from the IORP II, when we are engaging with
11-20 1,024 15,020
Pensions Authority, which has been trustees, one of the issues we’ll raise
21-30 525 13,160
expanding its headcount in with them is how they’re addressing
31-40 282 9,870
anticipation. The Authority will define the issue of value for money for
41-50 207 9,390
a set of financial tests for schemes to scheme members. When you chose an
51-99 403 28,260
undertake and examine solvency, risk investment manager, what role did
100-500 356 77,050
and sustainability. The Authority will their charges play in that decision?”
501-1000 56 37,470
also monitor asset allocations and
T
1001+ 45 107,770
liability developments. The conclusion rustee Decisions provides
Total 74,870 381,430
about the adequacy of the scheme will independent trusteeship to
be a matter of judgement, says private and public group
Kennedy, but it has to be a matter of pension schemes. Managing director
objective judgement, not subjective defined benefit pensions schemes are James Kavanagh expects IORP II to
rationalisation. horribly complicated,” says Kennedy. result in an increase in his red-tape,
”Over 60% of the liabilities of non-chargeable workload.
I
n an interview with Business Plus, defined benefit pension schemes are “Questions surrounding how you
Kennedy elaborated: “The pensions in respect of people who have already manage risk volatility relative to your
sector has to be aware of the fact retired. If a scheme ultimately doesn't assets are difficult because every
that this is an enormous change to have enough money and has to be scheme is different,” says Kavanagh.
how Irish pensions are run, and wound up, the members who have “The Pensions Authority would love
anybody who doesn't realise that already retired get first priority. That us all to hold everything in bonds, but
needs to make themselves aware of means essentially that the members in our world we have to sweat the
it. Schemes will have a more specific who have not yet retired are carrying assets in order to generate some
list of compliance duties and that is the risk. return.
going to be a challenge for small “And as pension schemes mature, “Very large pension schemes can
schemes. and more and more of the members afford to have their own investment
“We recognise that this is a big are retired, you have a smaller and team or risk officer, but there isn’t a
challenge for the pensions sector, so smaller cohort of younger members hope of that for most schemes. Lay
in the early days of the new directive carrying the risks for the entire trustees undertake a hugely onerous
our work will be more about infor- scheme. We’re not saying to trustees task, and it would be regrettable if
mation and communication than there should be no risk. You can't they start to feel they’re no longer
enforcement. However, it's our role to invest long-term without risk. But we valued. They add a huge amount of
supervise all schemes, so sooner or want trustees to show us how they’ve richness in terms of understanding
later we will be in contact.” arrived at where they’re at, and how the companies behind the various
Kennedy adds that the regulator’s they have figured out what's right for schemes we advise.”
experience of defined benefit schemes your scheme.” Kavanagh concurs with Kennedy in
in general is that there are more Pension trustees are often relation to trustees having to skill up
schemes they have concerns about volunteers who draw on the counsel when dealing with investment
than ones they are comfortable with. of trustee professionals. Pension intermediaries. “I've had any number
“The biggest single concern we have investments are managed by of consultancy firms tell me they’re
surrounds risk. We see very little professional intermediaries, and the gatekeepers. I’ve had to remind
evidence that trustees are thinking Kennedy stresses that it’s not good them that the trustees are in charge,
about the threats to what they are enough for trustees to simply hand and here's what we're going to do.
trying to do. We don’t for a minute over the job to money managers. You can delegate the task, but not
doubt the good faith of trustees, and According to Kennedy: “We're not the function.”
58 BUS INES S PL US O CT OB E R 2020
B P S U R VE Y PE NS IO NS
Keep Track Of
PRSI Contributions
To Maximise Pension
T
he State Pension average is 40-47 contrib-
(Contributory) is utions, the payment reduces
a social insurance- to €243.40. For a working
based payment made life average annual PRSI
to people at age 66. It is not a contributions of 30-39,
means-tested payment, so a the weekly State Pensions
person can continue to work payment is €223.20, and
or have other income such as it’s €211.40 if the average
an occupational pension. The is 20-29.
qualifying age was due to rise A PRSI contributions
to 67 in 2021 but that change history of 15-19 annual
has been deferred pending average reduces the payment
review by the Commission to €161.80, while an average
Embrace your
for Pensions. of 10-14 annual contributions
To qualify for a State currently pays out €99.20 per
Pension you must have suff- week until death. Recipients
icient social insurance contrib- of the State Pension also
utions. You also must have
paid PRSI contributions
before a certain age, have
qualify for a payment for
adult dependents which is
also determined by the PRSI
Retirement
accumulated a certain contributions history over FROM THE COMFORT OF HOME
number of paid PRSI contrib- four decades.
utions, and have a certain With average life
yearly average number of expectancy in Ireland
PRSI contributions since you currently 84 for women and Are you close to retirement? Then you have
first started to pay PRSI (the 80 for men, a full State one more big decision to make –how to draw
average rule) or have a certain Pension can currently pay out down your pension and get it working best for
total number of PRSI contrib- an average of €180,000 for the lifestyle you want.
utions (the total contributions men and €230,000 for
approach). women. State Pension rules There are a few options to consider, do I take
The average rule is complex, make allowances for out a lump sum? Invest some of it? Or get an
as there’s a normal average ‘homemakers’, and if you have income for life?
rule and the alternative worked in one or more EU
average rule. states your social insurance At Irish Life, we have over 80 years of
l Normal average rule: contributions from each EU expertise to help you find a plan that best
From the year you first state will be added to your suits your needs.
entered insurance to reaching Irish PRSI contributions.
pension age, you need an Individuals who want to So, no matter who your pension is with, ask
average of 10 contributions a inquire about their PRSI your Financial Broker or Adviser about a video
year to qualify for a minimum contributions history can or phone chat to discuss Retirement Planning
pension and an average of 48 do so through the Social with Irish Life. It’s a smart way to make the
a year to get the maximum Protection office in Sligo most of what you have and fully embrace your
pension. (071 915 7100). retirement.
l Alternative average rule: There is also the State
For a maximum pension, the Pension (Non-Contributory), Retirement products are provided
rule says you must have an which is means tested and by Irish Life Assurance.
average of 48 PRSI pays slightly less than the
contributions for each
contribution year since 1979.
contributory State Pension
to people who may never have
Visit Irishlife.ie
With a yearly average of 48 made a PRSI contribution in
or more contributions, the their lives. The current
current weekly pension maximum personal payment HEALTH LIFE PENSIONS INVESTMENTS
payment is €248.30. If the is €237 a week.
Survey continued on page 60 Irish Life Assurance plc is regulated by the Central Bank of Ireland.
Irish Life Health dac is regulated by the Central Bank of Ireland.
Both companies are part of the Irish Life Group of companies.
B P S URVEY P E NS IONS
For Good Pension Planning,
Balance Risk With Reward
P
ersonalisation is a watchword heart of a personalised GuidePath is
in pension management with an automatic process that gradually
Zurich Life, particularly moves an individual’s money into
when it comes to navigating a less risky investments, as they move
low-interest rate environment. towards their chosen retirement age.”
Niall Fitzgerald, Head of Retirement Fitzgerald is cognisant of the
Solutions, says that Zurich has a pressures currently being exerted on
number of investment strategies businesses due to the Covid-19
available to help clients choose the pandemic, although he cautions
right pension. against shelving pension payments.
“Retirement is very individual, so “My advice to any business owner is
the earlier the conversations start the not to treat pensions as a non-
better prepared the individual will be. essential cost within the business.
Traditional annuities are not very By all means consider affordability
popular at the moment due to the low in 2020 but always remember the
interest rate environment. However, purpose of pensions is to provide
they may serve a purpose later in replacement income in retirement,
retirement when the income and the importance of this can never
requirements for the individual be understated.
may change. “Many self-employed people will
“We have designed a strategy that still look to make single contributions
tries to balance investment risk with to their pension to help reduce tax
reward, giving the individual’s money bills, and advice from a financial
Niall Fitzgerald, Zurich Life
the potential to grow while not overly broker is essential before any final
exposing it to the volatility of decisions are made.”
investment markets. RetireRight is an In relation to auto-enrolment, not such an issue now. What is very
investment strategy that can Fitzgerald argues that it is not the important is that AE is introduced
automatically do this for individuals. silver bullet that some think it is. when employers can cope with it.
Then, when the time comes, it allows “Auto-enrolment will benefit later ”Pension benefits are deferred
the individual to invest in an annuity generations, assuming target income, and by setting up an
if it is more appropriate for them. If contributions are achieved. However, employee benefit structure it is easier
not, the strategy will have reduced it won’t fix the issue for the current to get more engagement from
their volatility on their behalf, offering generation nearing retirement, who employees. Every decade of delay
them peace of mind.” will have to rely on the State Pension doubles the cost for the same amount
Another option provided by Zurich as their primary pillar of income in of benefit at retirement. At the end of
Life is GuidePath, which Fitzgerald retirement and any subsequent the day though, it comes down to
says caters for different risk profiles retirement savings thereafter. So the company budgets and affordability.”
and retirement benefit plans. “At the impact of when AE is introduced is Survey continued on page 62
DC POTS MUCH TOO SMALL
T
he almost universal change workers have a pension plan. an annual income of €3,000.
from defined benefit (DB) to “Based on experience shared by It is simply not enough,” she
defined contribution (DC) some of the large insurance stated.
schemes has shifted risk to companies, the average DC Dreelan added that a person
employees, according to Eunice retirement pot is €61,000. wanting to secure a €30,000
Dreelan, chair of the Irish Let’s assume all current retirees annual pension, increasing by CPI
Association of Pension Funds. have had some DB service, so with an associated dependent
Addressing a gathering of the we will double the pot to pension, would have to save
association, Dreelan noted that €120,000. Based on current towards a pension pot on
only one in three private sector annuity rates this provides retirement of c.€1.2m.
60 BUS INES S PL US O CT OB E R 2020
Zurich
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Pensions. returns in Ireland over
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Sources: *5.3% Annualised returns over 20 years as of 31st August 2020; independent survey, source: Rubicon Investment Consulting Limited, August 2020.
† Awarded Investment Excellence, Brokers Ireland Financial Excellence Awards, 2019.
Zurich Life Assurance plc is regulated by the Central Bank of Ireland.
B P S URVEY P E NS IONS
Earlier The Better To Work Out
Your Retirement Number
W
hat’s your retirement people can afford to take a little more
number? That’s the risk in these than with their own
starting question for personal funds.”
clients of Davy. What For many people, saving cash and
they mean is what level of assets or leaving it on deposit is their default
core capital do you need to method for financial reassurance.
accumulate over your working life in Cash can pile up in some pensions
order to secure a desired level of too, and this year has seen the
retirement income? introduction of negative interest rates
It’s going to be a lot. Defined benefit on cash assets in pensions.
pensions typically pay two-thirds of Finlay points out that money is
final working salary. Adding on the purchasing power. “If your living costs
state pension brings gross income to double and your bank account
c.70% of final salary. However, remains the same, you have effectively
individuals also have to factor in lost half of your money. So while cash
spending and expenses that won’t be seems like a low-risk investment, the
there in retirement, such as children greater risk is the risk of not taking
outlays and probably mortgage any risk at all. Don’t confuse certainty
payments. Paula Finlay, Davy with security. Cash certainly does
Paula Finlay, Director at Davy Pensioneer Trustees provide certainty of outcome, but in
Pensioneer Trustees, explains: “If the current environment, this does
the target is a pension fund of €1m at balance of risk and return is not an not mean that your pension assets
age 60, assuming a rate of return of easy task,” Finlay advises. are secure.
5% per annum, a 25-year-old would “The three key questions to ask are “With negative interest rates and
need contributions of €10,000 p.a., what is your time horizon, how much inflation now eroding the value of
whereas a 35-year-old targeting the growth do you want, and what cash holdings both on deposit and in
same fund would need contributions amount could you afford to lose in the pensions, we believe a conversation
of €18,600 p.a. The sooner you start worst-case scenario? Pensions are about cash with your financial adviser
the better.” long-term investments, so most is the best investment you can make.”
Rates of return across pension plans
vary, depending on the investment
option selected. “Above all your
pension fund should be invested in ‘Most people can afford to take a little more risk
line with your own individual
tolerance to risk, and getting the right
with pensions than with their own personal funds’
CHALLENGE TO STANDARD FUND THRESHOLD
S
mall firms lobby group ISME pensions are not subject to an those working in the private
is supporting a legal test SFT threshold because they are sector. It is long overdue to level
case with regard to the way paid out of public funds rather the playing field between people,
pensions are taxed. The body is than individuals’ pension savings. no matter where they make their
supporting a proposed challenge ISME Chairman Ross McCarthy income.”
to the €2m ‘Standard Fund commented: “People in the The SFT was introduced in
Threshold’ on pensions, the private sector have a substantially 2005 at €5m, growing in line with
lifetime limit above which private lower ceiling than people in the inflation to €5.4m before being
pensions do not receive tax relief. public sector. If a Secretary cut to €2.3m in 2010 and then to
Once private pension pots pass General or a minister retires, they €2m in 2014. At current annuity
the €2m threshold, the holder could potentially have a pension rates, a €2m pension pot would
could pay up to 70% tax when the pot valued at €2.8m but that is provide a 65-year-old couple with
funds are withdrawn. Public not taxed in the same way as c.€65,000 per year.
62 BUS INES S PL US O CT OB E R 2020
B P S UR VE Y P E NSI O NS
Maintaining Momentum For
Pension Auto-Enrolment
W
ith economic pressures and
the Covid-19 pandemic, the
immediate often takes ‘Anyone over 55 should engage with a financial
precedence over the
important. However, the importance
adviser at least once a year’
of providing for retirement years
should not be sidelined, according to 2020, these benefits
John Groarke, Pensions Marketing haven’t changed.”
Manager with Irish Life. “If anything, Groarke notes that
the impact of the pandemic on state the low interest-rate
finances is such that personal savings environment has seen
and provision for the future has retirees continuing to move
taken on even more importance,” their pension savings into
Groarke adds. Approved Retirement
More immediate economic concerns Funds instead of more
have also played a part in the traditional annuities. “This
government’s decision to postpone is likely to continue for the
the introduction of pension auto- foreseeable future, and
enrolment (AE) from 2022. “Every means that someone in
year delayed is another year of their mid-50s is looking at
pressure on the state pension system,” having their pension money
says Groarke. “We fully understand invested for maybe another
that given the current economic 30 to 35 years, as they draw
climate it simply wouldn’t have been money gradually from this
possible to meet the ambitious 2022 fund in retirement.
John Groarke, Irish Life
plan. However, we also feel that we “This further reinforces
should not lose momentum on the the need for retirement
implementation of AE.” also support employees in giving them planning. We are seeing increasing
In terms of contributions, the initial time to meet a financial broker or numbers of people in their mid-50s
AE proposals suggested a gradual adviser,” he adds. engaging with retirement planning,
increase up to a level of 6% of salary “Our advice is the same as always, which is great. We would strongly
from the employee and 6% from the both to those with a pension or those recommend that anyone over 55
employer. Groarke’s view is that these thinking of starting one: get financial should engage with a financial
should be looked at as minimum advice. Your financial adviser will adviser at least once a year in relation
levels. “A large number of employers remind you of the benefits of saving to their pension and their retirement
already contribute significantly into into a pension, both in terms of tax planning, ensuring that they are
their employees’ pensions and they relief now and tax-efficient income maximising the benefits of pensions
should be supported and incentivised in the future. In a world that seems saving.”
to continue doing so. Employers can to have been turned on its head in Covid-19 restrictions have had
a major impact on face-to-face
interactions across all business
ASSET ALLOCATION BENCHMARK sectors, including finance. Groarke
stresses that Irish Life has adapted
I
f you manage your own pension The average equity allocations to the new circumstances. “We are
assets, how does your for Irish defined benefit supporting hundreds of financial
allocation benchmark against schemes fell to 27% in Q1 of advisers and brokers nationwide in
the professionals? According to this year. And allocations to delivering pensions advice and
Mercer, Irish pension schemes fixed-income investments like retirement planning remotely, using
have reduced their equity corporate bonds currently
online technology. You can now chat
allocations by almost a third in the stand at 50%, whilst the
from home by video with your
past three years, as they diversify allocation to alternative assets
into fixed income and real assets has doubled to 22% in the financial broker or adviser about
such as property and infrastructure. past three years. retirement planning with Irish Life.”
Survey continued on page 64
B U S I N E S S PL U S OCTOBER 2020 63
B P S U R VE Y PE NS IO NS
Review Investment ‘Glidepath’
Of Your Pension Benefits
C
ontributions for self- retirement can ill afford to waste
employed individuals and another four years in doing so,” Maher
professionals will be varied explains. “Many countries included
this year as some sectors a bedding-in period when they
have been impacted financially by the introduced AE to allow those new to
pandemic more than others. This will pension savings become accustomed
inevitably lead to a slowdown in to the concept. However, with the
pension top-ups by those working in onset of Covid-19, the deferral of these
certain sectors. costs to employers over a longer time
However, Declan Maher, Head of period will be particularly welcome.”
Corporate Pensions and Risk with Maher believes it is good policy that
Bank of Ireland Life, notes that all employers should be compelled to
lockdown earlier this year gave many pay into staff pensions. “We can’t
people an insight into what life ignore the financial pressures that
‘without’ work looks like, and that employers are facing given the
planning and appropriate action challenges of Covid-19 and Brexit.
should be taken now for the stage Declan Maher, Bank of Ireland Life “However, when employers pay into
when life ‘after’ work in retirement their staff pensions as a certain
becomes a reality. Maher is concerned about the percentage of salary, it becomes a
“Our message to such individuals is government’s slow progress on really rewarding benefit that
to ensure that proactive management introducing pension auto-enrolment significantly improves the financial
and review of their retirement for all employees aged between 23 wellbeing of employees. It also
planning journey continues, even and 60 earning above €20,000 per supports the employer in terms of
if it means a temporary cessation year. Originally it was proposed that their talent recruitment and staff
or reduction of pension contributions contribution levels would be 6% from retention strategy.
for 2020,” says Maher. employees, 6% from employers and a “Bank of Ireland Life would see the
“This would include a review of 2% direct contribution from the state. matching 6% of salary as the base
their investment strategy and the These contribution levels would be contribution level for occupational
appropriateness of the level of risk, phased in over six years, but last pension schemes that we administer
or lack of, in meeting retirement October the government signalled for employers. Other schemes are
income expectations. Or the that the phase-in period would often designed differently, with
consolidation of their pension pots, stretch to ten years. contribution levels in excess of this,
to ensure a complete and holistic “The two-thirds of private sector either based on employee service,
overview of their pension benefits employees who have yet to make seniority or both, rewarding loyalty
in place.” adequate provision for their of tenure and career progression.”
NEW PENSION DIGITAL PLATFORM
T
he low interest rate purchasing an annuity or become more important. Bank of
environment creates a transferring to an approved Ireland Life recently launched its
challenge for pension savers in retirement fund. MyPension365 group pension digital
their trade-off between risk and “There is no ‘one size fits all’ platform, which enables employers
return. For the majority of pension approach,” Declan Maher advises. and employees to navigate and
savers, the strategy of reducing “Hence the importance of ensuring engage with their company pension
exposure to risk assets as they get people continue to review their plans plan in a more automated way.
closer to retirement makes sense. and the investment ‘glidepath’ of “Since it streamlines pension
However, determining the most their pension benefits with their administration, making it simpler
appropriate investment strategy financial advisor.” and faster, it will reduce the time
pre-retirement will depend on He adds that with more people employers spend on payroll and
pension savers’ post-retirement now working remotely, the provision member-related administration,”
plans, i.e. taking a cash lump sum, of digital pension platforms has says Maher.
64 BUS INES S PL US O CT OB E R 2020It’s time to
invest in you.
Talk to us about a retirement plan that
works for you and your financial wellbeing.
Let’s chat about your pension.
boi.com/pensions
Terms and conditions apply. Life assurance and pensions products are provided by New Ireland Assurance Company plc, trading as Bank of Ireland Life.
New Ireland Assurance Company plc, trading as Bank of Ireland Life is regulated by the Central Bank of Ireland.
Member of Bank of Ireland Group. Advice on Bank of Ireland Life products is provided by Bank of Ireland, trading as Bank of Ireland Insurance & Investments,
Insurance & Investments, Bank of Ireland Private or Premier. Bank of Ireland is regulated by the Central Bank of Ireland.
Bank of Ireland is a tied agent of New Ireland Assurance Company plc for life assurance and pension business. Members of Bank of Ireland Group. Information correct as of August 2020.
WARNING: The value of your investment may go down as well as up.
WARNING: If you invest in a pension you may lose some or all of the money you invest.
WARNING: If you invest in a pension you will not have access to your money until your retirement date.PR OFI LE DAVY
Are there any positives with
negative interest rates?
Defining risk not as volatility but as loss of purchasing power changes the investment
landscape completely, explains Gary Connolly, Investment Director at Davy
A recent cartoon caught my eye. A customs officer Money is purchasing power
checking a passenger’s luggage admonishes him for We tend to think about money in nominal terms — euros and
having a plastic straw — hidden in his bag of cocaine! cents in our bank account. In the long run, the only rational
I was reminded of this lately with all the media coverage definition of money is purchasing power. If my living costs
over the recent decision by banks to start charging double and my capital and interest thereon remain the same,
for deposits from pension and corporate clients. The I have effectively lost half my money. If money is purchasing
concern is more appropriately directed at the enormity power, risk becomes that which threatens it — and security,
of cash allocations in portfolios, rather than the that which preserves or enhances it.
impending charge.
And this is the critical issue. We have grown up with the
The impulse to protect what we have is instinctive in us (misguided) idea that the primary risk of investing is the
all. This applies to all manner of possessions, not least our variability of our capital over short time horizons. Defined as
wealth. The application of negative interest rates on deposits such, then cash does seem low risk. After all, even with
has understandably struck a chord. But it’s possible this may negative interest rates, we can be fairly certain of what the
be a force for good, if it’s the call to action that triggers value of a deposit will be six or 12 months from now.
investors to confront a decision they have been unwilling
to make. Defining risk not as volatility but as loss of purchasing power
changes the investment landscape completely. What is
Confusing certainty for security traditionally defined as low risk — cash and bonds — becomes
All investors should have immediate liquidity requirements high risk in this context (as they have historically provided
addressed as part of their financial plan. There are legitimate minimal security from inflation). The assets that have
reasons for holding cash in a portfolio. But to the extent that protected us from long-term real losses, (e.g. equities, real
there are holdings beyond requirements for short-term assets) are low risk in this context.
expenses, the reasons provided are generally a variant on a
constant ‘safety’ or ‘peace-of-mind’ theme. I think this is Why are you holding cash?
confusing certainty for security. The default position of holding cash has always extracted a
price in the form of opportunity cost. Now, that decision is
Certainty is defined as a fact about which there is no doubt about to attract an explicit cost in the form of negative
or something that you know will happen in a particular way. interest rates. Use this occasion to at least ask two questions:
Does cash provide certainty? Unequivocally, yes. We are Why am I holding cash? Is the loss of purchasing power a
certain about the direction of deposit interest rates and that more important risk metric than volatility?
cash holdings will be negatively impacted.
If you have a genuinely long horizon with liquidity needs that
Security refers to the state of being free from danger or are satisfied, and choose to manage uncertainty through
threat. Does cash provide security? Unequivocally, no. The holding cash, you are trying to slay the wrong dragon
certainty of cash does not provide security against the real (volatility). There are many firms that will provide you with
risk that investors face. And that risk is the real value of the certainty you seek. But if it is long-term security you
savings — the primary threat to which is inflation. need, then the foregoing has implications for you. Don’t
seek certainty. Seek good advice.
Gary Connolly is Investment Director at Davy. He can be contacted at gary.connolly@davy.ie or on Twitter @gconno1Are inflation and negative interest rates eroding value? Right now, holding cash in an account or in a pension could actually cost you money. So, if you’re in that position, the best investment you can make, is a conversation with us. By talking to you personally, our trusted Advisers can help you to find a solution that works better for you and your financial planning and investment goals. So, you could derive more value from your money, rather than less. Let’s talk today. Call us on +353 1 614 3346 or visit davy.ie J&E Davy, trading as Davy, is regulated by the Central Bank of Ireland. We take our responsibilities personally.
B P S URVEY P E NS IONS
New KBC PRSA Pension Products
Major On Self-Serve Capability
K
BC Bank launched into customer’s attitude to
pension provision this year, risk and reward. We
leveraging off the bank’s also take into account
digital expertise. The pension the customer’s tolerance
offering marks KBC Ireland’s to loss. Knowing how
transition into bancassurance i.e. someone feels about
combining a banking and insurance loss allows us to
offering for customers. Headquartered hopefully keep them
in Belgium, KBC Group is long within their investment
established in the life and pensions comfort zone.”
business in other countries across The minimum
Europe. commitment is €25 per
The KBC pension products are month or €300 per year
portable Personal Retirement Savings with the option to make
Accounts. PRSAs are the preferred once-off top-ups
pension savings vehicle for employees coupled with pause and
and self-employed individuals who do resume functionality.
not belong to company pension The KBC Lifestyle
schemes, and there are currently PRSA fees are 2.5% for
c.300,000 PRSA contracts, according each contribution made
to the Pensions Authority. and an 0.9% annual
The KBC PRSAs are operated John Gethin, KBC Life and Pensions fund management fee.
through the KBC mobile app, with the For the non-standard
option to increase, decrease or pause Lifestyle Extra PRSA, the contribution
contributions while reviewing their fee is 2.5% and the annual charge
fund performance in real-time. “This ‘KBC Lifestyle Extra ranges from 0.50% to 1.45%
self-serve capability is unique to the PRSA is designed for depending on the selected fund.
Irish market and will allow customers Twenty and thirtysomethings
to track their progress against their individuals who want outside a company pension plan tend
own retirement goals,” explains John to long-finger pension commitments.
Gethin, Branch Manager, KBC Life
more choice’ Gethin reminds such individuals that
and Pensions. unless you plan on working for the
There are two types of PRSAs: want more choice. KBC says that its rest of your life, one day your pension
standard contracts and non-standard ‘ExpertEase’ range of funds aims to will likely be your only source of
contracts. The latter provide savers provide the optimum balance between income.
with a wider choice of investment upside potential and risk of loss, to “It’s really important that you plan
fund options but the charges are ensure the investor feels as ahead now so you have income when
higher than for standard PRSAs, comfortable as possible under all you’re no longer working,” he adds.
which account for 75% of the market. market conditions. “Post-retirement you could have to
The standard KBC Lifestyle PRSA Gethin adds that through the survive on your pension for 20 years
has a default investment strategy, testing phase, KBC found that one of or more, so relying on the annual
‘MyAutoinvest’, that alters as the saver the most important decisions for State pension (currently c.€12,900)
approaches retirement age. Under this customers is saving for retirement – could leave you financially vulnerable.
strategy, the younger the saver the not choosing an investment fund. “Setting up a pension now can be
higher the allocation of savings to “We know that customers can find the difference between just surviving
equities, which have the most pensions confusing and this can and enjoying your retirement. Pension
potential for growth. The older the negatively affect retirement planning, plan contributions are generally
customer, the larger the allocation to which is why we’ve simplified the eligible for tax relief as decided by
less volatile bonds and cash. decision-making process. Revenue and, unlike a savings
The KBC Lifestyle Extra PRSA, “Coupled with the ExpertEase account, you can’t dip into a pension
launching in October, is KBC’s non- investment strategy, we have also plan on a rainy day. Therefore it helps
standard PRSA, with a choice of eight introduced a new in-app risk profiler to secure your future.”
funds designed for individuals who that goes beyond just assessing a Survey continued on page 70
68 BUS INES S PL US O CT OB E R 2020Intro d u c i n g
Thumb
Powe re d
Pen s i o n s
Take control with Ireland’s first
totally digital pension. Manage
and plan for your future.
All through the KBC app.
If you already have the KBC
app, log-in and check it out.
1800 51 52 53
KBC.ie
WARNING: THIS INVESTMENT MAY BE AFFECTED BY CHANGES IN CURRENCY EXCHANGE RATES.
WARNING: THE VALUE OF YOUR INVESTMENT MAY GO DOWN AS WELL AS UP.
WARNING: IF YOU INVEST IN THIS PRODUCT YOU MAY LOSE SOME OR ALL OF THE MONEY YOU INVEST.
KBC Bank Ireland plc is regulated by the Central Bank of Ireland. KBC Bank Ireland plc is a tied agent of KBC Insurance NV trading as KBC Life and Pensions for the provision of Personal
Retirement Savings Accounts. KBC Insurance NV trading as KBC Life and Pensions is authorised by the National Bank of Belgium in Belgium and is regulated by the Central Bank of
Ireland for conduct of business rules.
KBC/3257_09.20B P S U R VE Y PE NS IO NS
Pension Gap Most Evident For
Private Sector Female Workers
T
here are many estimates
about what proportion of the
population save towards their
retirement. Research data
from pension provider Standard Life
points to overall pension ownership of
49%, with 59% of men having
pension provision and 41% of women.
Practically everyone on the state
payroll enjoys the benefit of pension pension pot is €120,000, which yields in receipt of occupational and private
provision. When they are stripped an income of under c.€5,000 p.a. pensions.
out, private sector pension coverage Combined with the contributory State This gender pension gap will
reduces to c.50% for men and c.30% Pension, that means an average ameliorate over time, and reflects the
for women.The main reason given for annual retirement income of fact that large cohorts of women in
not owning a pension is people saying c.€18,000. “There is a big disconnect their 70s and 80s now had minimal
they can’t afford it. between what people want from their workforce participation. ESRI noted
“We don’t believe that’s the real retirement and the actions they are that for occupational pensions higher
reason for some,” says Sinead taking to make it happen,” McEvoy levels of female educational attain-
McEvoy at Standard Life. “We think a adds. ”Our research regularly shows ment reduced the pension gender gap
combination of people wanting to people want to retire on about throughout the pension income
start paying into a pension but not €35,000 p.a. but at best are saving distribution.
getting around to it, not about half that amount.” However, ESRI also cautioned that
understanding pensions, not knowing Pension provision is a particular its review of the international
how to start one, and being issue for women. ESRI research evidence on gender differences in key
uncomfortable making retirement- among pensioners last year found that dimensions of financial decision-
related decisions are all blockers.” 88% of men and 93% of women were making demonstrates that women are
For private sector defined in receipt of the State Pension, while more risk-averse and have poorer
contribution pensions, the average 55% of men and 28% of women were financial literacy skills than men.
PERSONAL RETIREMENT SAVINGS ACCOUNT
T
he Personal Retirement of their job or employment status. break, which is relative to your
Savings Account (PRSA) PRSA providers are life assurance marginal rate of tax. If your income
continues to grow in companies and they cannot impose is taxed at 20%, the tax break is
popularity. Through 2019, an average a minimum contribution greater than 20% too i.e. for every €100 PRSA
of 1,450 people a month opened €300 per annum. There is no contribution your net cost is €80.
their own personal pension savings maximum contribution. Employers If your income is taxed at 40%,
plan, bringing the total number of are not under an obligation to pay the net cost of the PRSA
PRSA contracts to just on 300,000. into an employee PRSA, but in contribution is €60.
A PRSA facilitates regular practice the PRSA has become the
contributions and these are tax main channel for SMEs to contribute PRSA TAX RELIEF
deductible within certain limits. The to their staff pension savings. Age Contribution Limits
PRSA provides benefits at One of the benefits for individuals (% of Net Relevant Earnings)
retirement based on the amount of starting a PRSA in their twenties is Under 30 15%
contributions paid and the that they will likely never accept 30-39 20%
investment returns earned on those employment in a company that 40-49 25%
contributions. Individuals can won’t pay into their PRSA. 50-54 30%
increase, decrease or stop Tax relief on PRSA contributions 55-59 35%
contributions at any time, and depends on your age and earnings. 60 or over 40%
anyone can start a PRSA regardless Older people receive a larger tax
70 BUS INES S PL US O CT OB E R 2020PROF IL E TR US TE E D EC I S I ONS
Future Oversight of Pension Schemes
Good pension-scheme governance is a robust, process-oriented, decision-making
framework, writes James Kavanagh, Managing Director of Trustee Decisions
T
he IORP II Directive Good pension scheme governance is a robust, process-
aims to introduce an oriented, decision-making framework, which in times of
effective system of crisis protects the welfare of stakeholders and withstands
governance around extreme stress tests. It does not just refer to trustees being
fitness and probity, written compliant with the pensions regulator and pensions
policies on risk legislation – it means problem-solving and having effective
management, internal internal and external controls. It also involves excelling to
controls, administrative high-standard formal mechanisms by which trustees make
and accountancy decisions, are held accountable to beneficiaries, and act in
procedures, contingency accordance with the highest public and private standards.
plans and
communications. Being a trustee of a pension scheme is a significant
responsibility, which requires expertise and industry-wide
Trustees should note that experience. Trustees are often faced with challenging
this prudential supervision decisions as they attempt to balance the interests of
James Kavanagh will mean a forward- sponsoring employers and beneficiaries while running their
looking and risk-based scheme in an ever-changing legislative environment.
approach, and the Pensions Authority as Regulator will have
greater interventionist powers. Trustees need to get their Trustees are responsible for ensuring that their scheme is
aims and objectives as well as terms of reference in order, adequately funded for investing vast sums of money. It is
and understand the difference between basic governance vital that they are cognisant of regulatory requirements and
and good pension-scheme governance. investment markets while understanding how to balance risk
Trustees of occupational pension schemes have common with expected returns. Trustees need to mandate their
law fiduciary obligations with reference to the Trust Deeds advisors with clear, unambiguous objectives and ensure
that govern their schemes. This means: they operate unhindered by any conflict of interest.
l Protecting the rights of beneficial members For more information on Trustee Decisions, go to
l Knowing your responsibilities as a trustee www.trusteedecisions.com
l Ensuring pro-active monitoring of all agents.
Transparency is key when documenting and disclosing all
matters relating to a pension scheme. Pension-scheme
governance refers to the system of decision-making and
oversight used by trustees, to invest pension assets and
generally achieve desired retirement outcomes for scheme
members.
TO ALL OF OUR SERVICE PROVIDERS, SPONSORS AND FELLOW TRUSTEES
“On behalf of all of our Members of Defined Benefit and I also wish to acknowledge our Fellow Lay Trustees who
Defined Contribution schemes, may I acknowledge all the continue to pro-actively engage with us to mandate our
hard work and support which is being provided by our Advisors. While markets are volatile and unpredictable, our
Actuaries, Administrators, Auditors, Consultants, Custodians, fiduciary role is never so important as heroic work is carried
Fund Managers, I.T. Support, Legal Advisors, Life Assurance out by Government and our front-line medical professionals
Companies, Payroll Providers and Risk Providers during this and staff to defy this pathogen.
challenging time.
Finally, a special word of thanks to our Employers and/or
The current Covid-19 crisis is presenting many practical Sponsors who continue to support our prudential work
challenges, but we continue to be supported to ensure as trustees.”
James Kavanagh
(i) operational expediency, (ii) pro-active investment
management, and, (iii) claims and pensions being paid in a
timely manner.You can also read
