Pensions Update

1
Pensions Update

• Aidan McLoughlin
• Managing Director ITC Group

2
Introduction to ITC Group

• Integrated Wealth Management
• Focus on
• Investments
• Financial Advice
• Structures and Governance
• Consultancy
• Working in Partnership with Advisors
• Mutual Objectives Mutual Benefit

3
Agenda

• The Story so far
• The Threat to Pensions
• Pension Law and Tax Developments
• Market Developments
• Planning

4
The Story so Far

• Budget Oct 08
• reduction in salary cap to 150k
• Income levy on personal contributions
• Freezing of Fund Thresholds
• Standard Fund Thresholds frozen at 5,418,085

5
Public Sector Pensions Levy

• Rates
• 3 on income up to 15,000
• 6 on income between 15,000 and 20,000
• 10 on income over 20,000
• Deductible for tax and PRSI purposes
• Doesnt affect normal contribution limits
• Refund for Leaver lt 2years service

6
Budget April 09

• Income levies doubled 2,4,6
• Health Levy Doubled 4,5
• PRSI ceiling raised to 75,036
• Insurance levy
• 1 on Premiums
• from 1 August
• To some pensions only
• Insurers not applying for the moment

7
Budget April 09

• Nationalisation of university schemes
• 1.7bn assets 3bn liabilities
• Early Retirement Scheme for Civil Servants
• From 1 May
• Aged 50 or over
• Pension Fund Investment
• Discussions with Industry on Infrastructure
  Investment

8
An Bord Snip

• The Pensions Ombudsman with the Financial
  Services Ombudsman
• The Health Insurance Authority and the Pensions
  Board with the Financial Regulator
• Finally, the Group holds the view that as a
  general rule, regulators and ombudsman offices
  with responsibility for particular industries
  should fund all of their activities from payments
  made by the relevant industry

9
Comptroller and Auditor General

• Public Sector Pensions worth 108bn at 31/12/08
• In 2006 these were worth 75 bn
• An increase of 33bn
• 400,000 beneficiaries
• 270,000 each

10
Comptroller and Auditor General

• Private Sector Pensions
• Down from 86.6bn to 66.7bn (IAPF)
• A loss of 20bn
• 579,922 beneficiaries
• 115,000 each

11
Prior Changes to PS Pensions
12
Commission of Taxation

• Tax relief at 1 for each 1.60 (37.5)
• Retirement Savings Plan _at_ 1 tax relief for 2
  saving
• Early access possible
• Lump Sum
• 200k tax free
• Excess taxed at standard rate
• Auto Enrolment

13
Pensions Under Threat

• 3bn in Tax Foregone
• Check the Numbers!
• Favours the wealthy
• Standardisation of Tax Relief
• Only Affects Personal Contributions
• Life Strategy report
• Taxation of Tax Free Lump Sum
• Small gain Big Grief

14
General Observations

• Pensions are a Solution to a Long Term Problem
  Taxation is a solution to a short term problem
• Current Pension structures are in big Trouble
  Negative Tax Changes will destroy same

15
General Observations

• Tax Numbers are out of date
• No fund Growth - 1.2bn
• Decline in Contributions - 1bn approximately
• Tax Numbers are unfair
• Counting both CT deduction and loss of BIK
• Not including BIK for Public Sector

16
Pension Law Developments

• Trustee Training
• Registered Administrators
• Funding proposals
• 18 month to file
• Covering period greater than 10 years
• Prosecutions
• On the Spot Fines
• Construction Industry

17
Pension Law Developments

• Statements of Reasonable Projections
• Eurostat requirements
• Deferral of Annuity Purchase

18
Tax Developments

• Revenue Funding requirements
• UK Revenue and ARFs
• DTA Relief denied
• Cadbury case and VAT
• Reverse charge
• Applicable to pension funds
• Position of SSASs?
• Retirements

19
Market Developments

• Heathrow ARF
• Phased PRSA Strategy
• Leveraging Pension Cash
• Enhancing Security of Assets
• Private Equity Funds
• Mezzanine Finance

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Heathrow ARF

• Allows ARF Option to Employees
• STEP 1 set up Buyout Bond (BOB)
• STEP 2 Transfer to UK SIPP
• STEP 3 Transfer back to BOB
• STEP 4 Transfer to ARF

21
Phased PRSA Strategy

• Multiple Contracts allowed
• Proprietary Director Neednt sell Shares
• Tax Free Cash without triggering ARF
• Full Death Benefit Tax Free to Spouse
• BUT
• ARF must still be purchased in the end

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Leveraged Cash Position

• Pension Fund has Cash Client does not
• Convert pension cash to self adminstered basis
• Place on deposit with institution that will
  provide you with required facilities

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Example 1

• Joe Bloggs has SSAS with 500k in cash
• He needs business overdraft of 500k
• He approaches Bank A with proposal for deposit by
  pension fund and overdraft for Joe which they
  accept

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Example 2

• Joe Bloggs converts staff insured scheme to self
  administered basis
• It remains 90 invested in Insured funds but cash
  element is broken out as separate deposit
• Planning in example 1 is repeated

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Comments

• Members are not disadvantaged
• There is no charge over their funds
• The rate of return on the cash element is
  typically increased
• The cash is more secure as it benefits directly
  from Government Guarantee

26
Enhancing Security of Assets

• Movement of Cash from Balance Sheet to SSAS
• Getting direct benefit of government guarantees
• Using a trust based ARF SIPP
• Note protection under Family Law Acts

27
Private Equity Funds

• Permit SSASs to invest in private equity
• Manages Revenue and Legislative rules
• No more than 5 of Fund
• No more than 10 of target company
• Liquidity
• Close company

28
Mezzanine Finance Example

• Facts
• Property held by Company
• 60 Mortgage in place
• Bank unwilling to lend higher percentage

29
Mezzanine Finance Example

• Solution
• Create Mezzanine Finance Instrument (Loan)
• Second Charge on the property
• Sold to Private Investor(s)/SSASs

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Conclusion

• Pensions have been through a dramatic 12 months
• Radical change has occurred and continues
• The Need for Security is Greater than ever
• Huge opportunities to assist clients