# No access to retirement benefits from age 50 under new proposals



## walktothewater (18 Nov 2020)

No access to retirement benefits from age 50 under new proposals
					

Government eyes more simple pensions and abolition of multiple products




					www.irishtimes.com
				




Apologies if there is already a thread. I am surprised at these proposals. What is the rationale for them? Has there been, or will there be, a consultation process with the public? I thought that government policy was to legislate for a degree of flexibility regarding pensions. I guess not.


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## Sarenco (18 Nov 2020)

The proposals are discussed here -





						Report of the Interdepartmental Pensions Reform and Taxation Group   published
					

The Minister for Finance, Paschal Donohoe TD, today (Friday) welcomed publication of the Report of the Interdepartmental Pensions Reform and Taxation Group (IDPRTG). This work delivers on a number of commitments made in the Roadmap for Pensions Reform 2018 – 2023...



					askaboutmoney.com
				



There is a proposed "grandfathering" provision where an existing scheme or product allows benefits to be drawn from 50.


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## Conan (18 Nov 2020)

There is certain logic to this.  With increasing longevity, pension funds are designed for providing an income when retired. There is a difference between "access" at age 50 and "retirement " at 60 and beyond.  Realistically,  retirement at age 50 is a pipe dream (short of winning the Euromillions) for the vast vast majority.


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## walktothewater (18 Nov 2020)

Conan said:


> There is certain logic to this.  With increasing longevity, pension funds are designed for providing an income when retired. There is a difference between "access" at age 50 and "retirement " at 60 and beyond.  Realistically,  retirement at age 50 is a pipe dream (short of winning the Euromillions) for the vast vast majority.



I can see the logic. I question that retirement at 50 is necessarily a pipe dream. For those who are prepared to live frugally, and do not have kids, I believe it is realistic.


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## Sarenco (18 Nov 2020)

It's mainly about ensuring there are consistent drawdown rules across all product types (BOBs, RACs, etc.) in the future.  But any existing entitlements will be preserved under so-called grandfathering arrangements.

The Report is an impressive piece of work and deserved far more media attention, IMO.

I just hope that the proposals are actually implemented in a timely fashion.


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## NoRegretsCoyote (18 Nov 2020)

walktothewater said:


> For those who are prepared to live frugally, and do not have kids, I believe it is realistic.



Indeed, but the issue is whether retirement at 50 should be favoured via the tax system.

If you want to fund it via normal saving off you go.


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## walktothewater (18 Nov 2020)

Sarenco said:


> It's mainly about ensuring there are consistent drawdown rules across all product types (BOBs, RACs, etc.) in the future.  But any existing entitlements will be preserved under so-called grandfathering arrangements.
> 
> The Report is an impressive piece of work and deserved far more media attention, IMO.
> 
> I just hope that the proposals are actually implemented in a timely fashion.



Sorry, didn't see existing thread. I agree that the report deserved far more media attention.


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## walktothewater (18 Nov 2020)

NoRegretsCoyote said:


> Indeed, but the issue is whether retirement at 50 should be favoured via the tax system.
> 
> If you want to fund it via normal saving off you go.



In that case, and if we are to be consistent, abolish tax on savings interest (which is already derisory as it is).


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## LDFerguson (18 Nov 2020)

NoRegretsCoyote said:


> Indeed, but the issue is whether retirement at 50 should be favoured via the tax system.
> 
> If you want to fund it via normal saving off you go.



I wouldn't agree that it's "favouring" retirement at 50.  Someone who retires at 50 has got the same tax treatment on their pension contributions as someone retiring at 65.  One could argue that they have got less tax relief because they have 15 years' less contributions to avail of tax relief on.  And when they retire, they may be paying some tax on their pension.  For an extra 15 years.  

As it stands at the moment, there are the same tax relief rules whether one retires at 50 or 65.  Perhaps the person who retires at 50 has maxed out their contributions for years.  That choice is also open to a person who retires at 65.  Where's the favouring?    

It could also be argued that someone who retires at 50 is creating a taxpaying job for whoever will replace them.


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## thunderin_eejit (19 Nov 2020)

Reference is made to a possible "lead in" period, but I can't find a reference to grandfathering of existing scheme rights.

Justification for this change is "A recommendation to raise the age from which early retirement benefits can be accessed to the age of 55 would be consistent with increased longevity, potentially helpful towards increasing benefit adequacy, and aligned with the policy direction of longer working " which sounds like waffle to me, and looks like change for the sake of change.

If something is working well or doing no harm it should be left alone - chopping and changing the rules around pensions is not going to give confidence to people that they are safe to lock their money away for 30 or 40 years.


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## NoRegretsCoyote (19 Nov 2020)

LDFerguson said:


> Where's the favouring?



Because the tax system is highly progressive. You benefit from a lot of relief at the higher rate through your lifetime and then generally pay tax (if at all) on the lower rate in retirement.

If there was a flat 30% tax on all income with no credits this would not be an issue.


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## Steven Barrett (19 Nov 2020)

I would certainly welcome the simplification of pension plans but the PRSA isn't the right option as they are too expensive. With the charges set by legislation and each individual pricing option having to be authorised by the Pensions Authority (who receive a cut of the amc), they are not as competively priced as personal/ execs pensions. You can get a personal/ exec pension for as low as 0.35% amc but a PRSA is 0.9 (you can get this down to 0.65% if you have over €100k). Carry this over the lifetime of a policy and that is a huge cost to the investor.

I haven't read the report yet (I will but it's 145 pages long) but how will the tackle the difference in pension funding between company pensions and PRSA's. Let's face it, the % of salary limit isn't enough for most people to have a decent pension in retirement in relation to income. 

Not bothered if they get rid of the ARF and just continue the lifespan of the pension with access to funds. I am more concerned about the cost to policy holders, who could easily be paying 1.5% amc if an advisor adds 0.5% ongoing to the cost. 

The change of the normal retirement age to 70 will shock people but that is a good thing. It means the trustees/ employer will continue to contribute to the plan up to that age. If they had a nra of 60, they could stop contributing at that age. There is nothing stopping a person retiring earlier. 


Steven
www.bluewaterfp.ie


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## LDFerguson (19 Nov 2020)

NoRegretsCoyote said:


> Because the tax system is highly progressive. You benefit from a lot of relief at the higher rate through your lifetime and then generally pay tax (if at all) on the lower rate in retirement.
> 
> If there was a flat 30% tax on all income with no credits this would not be an issue.



Yes - that's part of the incentive for people to put money into pensions.  It's the same for people who retire at 65 or 70 as it is for people who retire at 50.  It doesn't favour retirement at 50.


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## Sarenco (19 Nov 2020)

SBarrett said:


> With the charges set by legislation and each individual pricing option having to be authorised by the Pensions Authority (who receive a cut of the amc), they are not as competively priced as personal/ execs pensions.


The Report concludes that the Pensions Authority will review the rigidity of the PRSA charging structure and the PRSA product approval process with a view to eliminating the need for pre-approval in the case of non-material changes to an existing PRSA product.


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## Steven Barrett (19 Nov 2020)

Sarenco said:


> The Report concludes that the Pensions Authority will review the rigidity of the PRSA charging structure and the PRSA product approval process with a view to eliminating the need for pre-approval in the case of non-material changes to an existing PRSA product.



That's for the like of the addition of funds. 

The cost of a PRSA to a provider prevents them being able to offer as competitive prices. €20,000 for initial application, €5,000 for each product thereafter. €2,000 annual fee per product thereafter and 0.05% of the AUM each year. A life company with 10 options would have to pay €65,000 application fee and €20,000 a year plus 0.05% aum.


The proposals for ARFs/ vested PRSAs upon death is egregious. Value of the ARF is taxed as income in the year of death under PAYE. This could be up to 52% if they died before 66, 48% thereafter (no PRSI). The remainder of that fund would then be part of the inheritance under CAT rules. If you had already used up your allowance on (family home), you are hit with 33% tax on the rest. On a ARF worth €1m, €321,600 could be paid out to the family and €678,400 is paid to the revenue. Currently, ARFs sit outside CAT for inheritance tax purposes and is taxed at 30% for children over 21. 

This won't just impact on large ARFs, it will effect loads of people with a decent ARF fund and a family home. 


Steven 
www.bluewaterfp.ie


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## Sarenco (19 Nov 2020)

SBarrett said:


> €20,000 for initial application, €5,000 for each product thereafter. €2,000 annual fee per product thereafter and 0.05% of the AUM each year.


That doesn't strike me as a sufficiently large cost to explain the extent of the difference in AMCs applied to PRSAs as compared to RACs.


SBarrett said:


> The proposals for ARFs/ vested PRSAs upon death is egregious.


Perhaps but I've never understood why ARFs should sit outside CAT for inheritance tax purposes, with drawdowns subject to income tax, etc.

After all, an ARF is not intended to be an estate tax planning tool.


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## fistophobia (19 Nov 2020)

The headline in the article indicates this is going to happen.
Its another government report.
Interested to know what grandfathering will mean.
What about people who have been consistently funding pensions to the max, say in their 40s now,
and planning to retire from 50. I know plenty of people in this category.
Not everyone wants to keep working.


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## Sarenco (19 Nov 2020)

fistophobia said:


> Interested to know what grandfathering will mean.


The Report states that existing BOBs and RACs should be allowed to run-off over time, retaining their existing product features, terms, and conditions.


fistophobia said:


> I know plenty of people in this category.


That surprises me. 

I strongly suspect that only a tiny minority of people access pension benefits at 50.


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## Steven Barrett (19 Nov 2020)

Sarenco said:


> That doesn't strike me as a sufficiently large cost to explain the extent of the difference in AMCs applied to PRSAs as compared to RACs.



I wouldn't say it's the only reason but it's a cost that has to be paid for. PRSA's also have more reporting requirements too, again more cost. I don't know the rest, I'm sure advisor commission is a factor in there too. 




Sarenco said:


> Perhaps but I've never understood why ARFs should sit outside CAT for inheritance tax purposes, with drawdowns subject to income tax, etc.
> 
> After all, an ARF is not intended to be an estate tax planning tool.



It does for U21s (wouldn't say there's a massive amount of them). I have no problem with it being taxed under CAT or taxed as income. But both seems a bit unfair, with the revenue taking up to 68% of the value. ARFs may not be an estate planning tool. but inheritance shouldn't be primarily taken in tax by the revenue.


Steven
www.bluewaterfp.ie


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## Steven Barrett (19 Nov 2020)

Sarenco said:


> I strongly suspect that only a tiny minority of people access pension benefits at 50.



That's my experience and those that do, are not retiring or accessing all their pensions. They may access a BOB or old work pension to pay down a debt or pay for college for kids and have other pensions for later. They don't access the ARF at all until they have to at 61. 

Steven
www.bluewaterfp.ie


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## Sarenco (19 Nov 2020)

SBarrett said:


> I have no problem with it being taxed under CAT or taxed as income


The only unfair element (IMO) is the way the income tax element would be applied.

I don't see why the ARF shouldn't be subject to CAT like any other inherited asset and then any drawdowns by the person inheriting the ARF could be subject to income tax with all the usual tax credits, bands, etc.


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## Steven Barrett (20 Nov 2020)

Sarenco said:


> The only unfair element (IMO) is the way the income tax element would be applied.
> 
> I don't see why the ARF shouldn't be subject to CAT like any other inherited asset and then any drawdowns by the person inheriting the ARF could be subject to income tax with all the usual tax credits, bands, etc.



Precedent. For 21 years, the ARF has been taxed at 30% outside of the thresholds. 

Your suggestion is a lot more equitable and in line with other assets, such as inheriting a property and renting it out. 

Steven
www.bluewaterfp.ie


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## Marco 1972 (28 Nov 2020)

walktothewater said:


> I can see the logic. I question that retirement at 50 is necessarily a pipe dream. For those who are prepared to live frugally, and do not have kids, I believe it is realistic.





Agree,,

start saving even a little early and it mounts up, plus l think there is not enough pushback against every increasing retirement ages,, all that stuff about living longer and healthier is very subjective and a lot of it guff,  l am nearly fifty and could easy go part time if possible and am active enough do dont know what they expect from 70 yr olds ...


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## Ndiddy (14 Dec 2021)

Steven Barrett said:


> You can get a personal/ exec pension for as low as 0.35% amc but a PRSA is 0.9 (you can get this down to 0.65% if you have over €100k)


How does one get a personal pension?


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## Dave Vanian (14 Dec 2021)

Ndiddy said:


> How does one get a personal pension?



You can make contributions to a Personal Pension if you are self-employed or in non-pensionable employment (i.e. in employment but not part of a pension scheme in respect of that employment.)


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## ginslia (15 Dec 2021)

Any update on what happened to these proposals from last year? Particularly not letting you access pension funds from 50?


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