The recently published Finance Bill carried some important pensions legislation changes and how they work.
Assuming it is passed by 31st December these changes will come into effect in 2022.
The changes outlined are positive in my opinion.
The AMRF ruling in particular carries a bit of common sense around a previous rule that has caused significant frustration for individuals in the past.
Death in Service
This blog here, what happens to your pension when you die.
If you are a member of an occupational scheme and pass away in service, the maximum lump sum payable is 4 x your salary.
Any amount over this has to be used to purchase an annuity – ie a fixed income.
As we know, in the current low interest rate environment, annuities are really unattractive.
The Bill proposes that this no longer be the case.
Any surplus over 4 x salary will be able to invest in an Approved Retirement Fund (ARF).
This removes the requirement to purchase an annuity with any surplus.
Learn more here about an ARF versus annuity.
Approved Minimum Retirement Fund (AMRF) & Vested PRSA’s
This is a big change in pensions.
Particularly if you are due to retire or have retired and hold an AMRF.
Currently, when you retire, if you wish to invest in an ARF, you need to meet one of two conditions:
- Have a guaranteed income of €12,700 or more for life or
- Invest €63,500 in an Approved Minimum Retirement Fund (AMRF)
The only form of guaranteed income is pension income.
This is fine if you are in receipt of the full state pension income when you retire as this is over €12,700.
You could then invest in your ARF.
If you didn’t meet this you would have to invest €63,500 in an AMRF.
This AMRF, you are capped at withdrawing a maximum 4% per annum – in one go.
The Finance Bill proposes removing the AMRF.
This means when you retire from January, you should be able to invest all of your funds in an ARF.
No requirement for the AMRF.
If you currently hold an AMRF and ARF, we are still waiting on guidance as to how the switch of current AMRF’s to ARF’s will be done.
Similarly, if you hold a Vested PRSA.
The ringfenced Vested PRSA fund requirement is to also be abolished.
Pension Transfers
The convoluted world of pension transfers has gotten a bit simpler.
Currently, if you wanted to move your occupational pension scheme to a PRSA and had more than 15 years scheme service, you can’t.
However, if you did have less than 15 years scheme service, you could.
Importantly, there are a number of reasons one would consider a transfer to a PRSA.
But this 15 year scheme service rule restricted them, unfairly in my opinion.
The Finance Bill has proposed removing that 15 year scheme service rule.
This should mean that you will be able to move your occupational fund to a PRSA if it’s in your interests, irrespective of your service.
Point to note, there are only a few reasons you should be moving an occupational fund to a PRSA.
Reach out if you’re in doubt: info@fortitudefp.ie
Summary
Some small but positive pension changes in my opinion.
A step on the correct road to simplifying a topic that is way more complicated at a local level than it should be.
Just remember, these have only been proposed in the Finance Bill.
The Finance Bill has actually yet to be signed off!
If you have any questions on the changes or even an existing AMRF you wish to discuss, give me a call, 086 0080 756 or drop me a mail, francis@fortitudefp.ie.
Francis McTaggart CFP® SIA RPA QFA
These blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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