IORPS & International Pensions Update Presented by: Aidan Mc Loughlin Group Managing Director
About ITC Group • Established 1994 • Irish owned – 65 Staff • €3 billion of assets under trusteeship • 4,000 schemes • Independent Trustee firm of the Year Award 2014-2018 2
About ITC International • Maltese pension provider • Joint venture between ITC & Maltese Financial Services Company • First company to be approved for both company & personal pensions • IORPs approved Pension Master Trust in Malta 3
IORPS 11 Aims 1. Better Protection for Members via Enhanced Governance and Risk Management 2. Better Communications to all members 3. Investments to benefit Growth, Employment and Environment 4. Encourage Cross Border Pensions 4
Practical Impact • Professionalisation of Trustees • Greater policies and procedures Legally binding SLAs • Remuneration policy and conflicts • Risk assessments • • More officers – Key function holders Internal auditor • Risk management • • More supervision • More meetings – min 4 per annum 5
Impact on Small Schemes Ø EU Commission: “The Directive has built-in proportionality throughout the text and the additional requirements are unlikely to impose a disproportionate burden on smaller occupational schemes. Moreover, Member States have the option not to apply the Directive, in whole or in part, to any IORP with less than 15 or 100 members, while keeping some basic requirements to comply with.” Brian Hayes – The Irish government lobbied strongly to ensure small schemes were protected from the full impact. 6
Regina Doherty View • The value of investments held in many schemes fell substantially during the financial crisis. This highlighted the need for stricter regulation and greater protections, especially for small schemes investing in riskier unregulated markets. • Concerns in relation to this sector are particularly around the protection of the consumer and the money they have invested, the riskiness of investments, the charges that apply, and the standard of governance. Accordingly, the Government has decided that the provisions of the Directive should apply to all funded occupational pension schemes. 7
Impact On SSASs • One member arrangements • Minister’s statement suggests no exemption for SSASs (as applied with IORPS 1). • Therefore investment diversification rules will apply. • This is subject to legal challenge by APTI. • This may result in exemption continuing. • Otherwise alternative investments will be facilitated by BOBs and PRSAs (which are not affected by IORPS 1 and 2) 8
Example Jane wishes to invest €500k in SSAS and buy €400k property Ø NO EXEMPTION THERFORE SSAS MUST DIVERSIFY Jane invests €500k in SSAS • Jane shuts SSAS and transfers €500k to BOB/PRSA • BOB/PRSA buys property • 9
Impact on 2-100 Member Schemes • If no proportionality • Push towards Mastertrusts • PA requirements include: 10
Mastertrusts • Trustee – DAC – only 1 Trust • All Directors are qualified; one independent • Must have business continuity Viable under unfavourable conditions • • Capitalisation Min €100k or two years costs; held on deposit • • Risk assessment which addresses: Greater cost/ complexity of multi-employer • Being “for profit” and independent of any other person e.g. Insurer • Employer engagement and oversight • Charges transparency • 11
Conclusions • IORPS 2 will impact the pensions landscape • Existing arrangements are likely to be affected • The way forward is likely to involve a range of flexible solutions 12
International Pensions • Encouraged by IORPS 1 and 2 • Facilitates cross border pensions • Common standards across Europe • Also encouraged by Pension Mobility Directive • Facilitates transfers • Indirectly encouraged by Irish Revenue • Pensions levy • ARFs aren’t pensions - therefore no DTA relief for non-residents • €2m fund cap • SI 717 of 2003 • Permits transfers for Occupational Schemes • Cross border migration, employment and retirement • Creates demand for international pensions 13
Key Revenue Requirements • Transfer to an IORP • ITC had the first and only commercial IORP approved in Malta • Member has completed a Bona Fide Declaration • O’Sullivan case shows that member can remain in Ireland • Non-resident ARF rules make it essential for those leaving Ireland • Other reasons include benefit consolidation, political and financial risk management 14
Malta Pensions - Benefits • Benefits from Age 50 – no retirement necessary • Lump sum at 30% - no cap • No Fund Cap • Flexible draw down – can be zero • Benefits on First Death • Payable under Trust to nominated beneficiaries 15
IORPS General Investment Rules Ø Diversification Maximum of 10% in any single asset (5% for residential property) • Maximum of 20% in any UCITS or diversified funds • Maximum of 20% in any fund universe • Maximum of 30% in any fund of funds • Maximum of 30% in unregulated assets • Maximum of 30% on deposit with one institution, 10% if outside EEA • Ø Investments not allowed Structured loan notes • Derivatives, unless purely for the purpose of risk management. Max 10% and 5% per issuer • 16
Pension Planning: €2m Limit Ø Jack is 40, owns his own business and has a fund worth €2m. Ø If Jack waits to 60 his fund could exceed €5m giving EFT of €1.2m. 17
Pension Planning: €2m Limit • Jack transfers to Malta. • This triggers BCE immediately but no 40% tax as value doesn’t exceed €2m • Fund continues to grow to €5m in Malta but excess is exempt from 40% tax • Can receive lump sum of €1.5m at 60 • Can set drawdowns to suit his lifestyle thereafter. 18
Pension Planning: Non Resident • Annie, resident in Northern Ireland has maturing Irish pension benefit worth €300k • If Annie ARFs in Ireland she will suffer PAYE at source • She will need to file a tax return and pay tax in UK. • She will not be able to reclaim Irish Tax under DTA as ARF is “not a pension” 19
Pension Planning: Non Resident • Instead Annie transfers to Malta. • Income in paid gross in Malta. • Annie just files and pays UK tax. 20
Pension planning: International Executive • Nick has received a job offer in California. He has a pension fund worth €500k in Ireland. • Nick is concerned that his pension pot will be taxed in the US. However he cannot transfer it to the US. 21
Pension planning: International Executive • Nick transfers his pension pot to Malta. • Article 18 of the Malta US treaty provides that the Income earned by the Malta Fund is only taxed on drawdown. • Nick now benefits from tax free roll-up in US 22
Pension Planning: Portugal • Jill, aged 60, has a pension fund worth €1m and is retiring to Portugal. • If Jill ARFs in Ireland she will suffer Irish tax at source. 23
Pension Planning: Portugal • Jill transfers to Malta. • Jill receives €300k tax free. • She sets her drawdowns at €30,000 per annum. • Under the Non Habitual Resident regime in Portugal Jill can receive this tax free for 10 years. • In total Jill has received €600k free of tax. 24
Conclusions • Overseas transfers have always been part of the pensions landscape • Boosted by: IORPs Directives • • Greater migration Negative Tax treatment of ARFs • Fund cap • AND ITC International Pensions! • 25
Questions? For further information please contact: Email: Aidan.McLoughlin@independent-trustee.com Telephone: 01 661 1022 Website: www.independent-trustee.com 26
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