Tag: Post Retirement


IORP II Directive – Impact on Occupational Pension Schemes.

An EU Directive, IORP II, was signed into Irish legislation on Tuesday 27th April 2021 by Minister for Social Protection, Heather Humphreys. The new regulations introduced some changes to the governance and operation of occupational pension schemes.
It is important to note that the regulations only apply to Occupational Pensions Schemes (OPS), which include Small Self-Administered Pension Schemes (SSAPs) and Group Company Pension Plans.
It does not apply to Personal Retirement Bonds, Personal Retirement Savings Accounts, Approved Retirement Funds or most Personal Pension Plans.
The regulations cover areas such as trustee qualifications, risk management , auditing and reporting, supervision and investment and are designed to bring benefits to scheme members.
However some changes to permissible investments in one member schemes, mainly SSAPs, are effective immediately and include the following:

  • > Schemes’ assets must be predominantly invested in regulated markets. This means that direct property investments and unregulated investments will be restricted to no more than 50% of the aggregate portfolio. We await guidance on what this might look like in practice.
  • > Schemes’ assets must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and accumulation of risk in the portfolio as a whole.
  • > Environmental, Social and Governance (ESG) issues must be considered when making investments.

The Pensions’ Authority will provide further guidance and information over coming weeks and months to ensure the new obligations are fully understood. While we await this further guidance, we can still help clients in planning to adapt their Self-Administered Pension Schemes to comply with this new legislation.

The optionality within a Harvest SSAP offers you the potential to invest in bespoke portfolios of regulated assets, to diversify your pension fund and meet your retirement planning objectives. Regulated ESG investment opportunities are also available, all with guidance from our Investment Advisory Team.

As always, we are here to help. If you have any questions or concerns about IORPS II and how it impacts your Self-Administered Pension Scheme contact Harvest on 01 237 5500 or email justask@harvestfinancial.ie and we will be happy to assist.


What happens an ARF on Death?

What Happens to an ARF on Death?

Your ARF in Estate Planning

At the point of retirement many clients will opt to establish an Approved Retirement Fund (ARF) with their accumulated pension fund rather than purchasing an annuity from a life assurance company. One of the main advantages of the ARF is that you retain the capital value at retirement and any balance remaining on your demise can be passed to your Estate. How it is eventually distributed is something that you should consider and include in your Will.

Your ARF is a personal asset. Unless it is specifically disposed of by Will, it is included in the residue of your Estate and is succeeded to by residuary beneficiaries. On occasion, this may be contrary your intention. It should be noted that there is no requirement that you should have directed how the ARF would be distributed, by Will or some other form of direction before your death.

Once the funds are distributed, by your decision, as the ARF holder, in your Will or by the Qualifying Fund Manager (QFM)/Trustee, the tax treatment set out below will apply. The QFM for the ARF is responsible for deducting income tax under Section 784A TCA 1997. The beneficiaries are responsible for paying any CAT due directly to Revenue.

Death of ARF Holder

Who inherits the ARFIncome TaxCAT
Spouse’s ARFNo Subsequent withdrawals subject to PAYENo Spouse / Civil partner exemption
Child under age 21No  Yes Taxable Inheritance
Child over age 21Yes Subject to 30% tax regardless of fund size.No Exempt
Others (Including spouse or civil partner directly)Yes Income of deceased in year of death. Qualified Fund Manager (QFM) deducts higher rate tax under PAYEYes Taxable Inheritance (spouse exemption applies to legal spouse)

As you can see from the table, the tax treatment of the value of the ARF will be different depending on the age of the child receiving it. A child over age 21 will be subject to tax at 30%, regardless of the size of the fund.This may present some planning opportunities for individual’s with larger Estates.

To ensure your Will correctly reflects your wishes, we recommend that upon next reviewing it with your solicitor, your ARF policy be clearly and separately identified – leaving it, or a stated percentage or share of its value on your death, by means of specific legacy to one or more named beneficiaries.

If you would like to discuss how your approved retirement fund (ARF) fits in with your overall Estate Planning, please contact you Private Client Advisor on 01 2375500 or email justask@harvestfinancial.ie.

Financial Advice Post Retirement

Independent Trustee Firm of the Year

Independent Trustee Firm of the Year

We are delighted to announce that Harvest Trustees Ltd has received the prestigious award of ‘Independent Trustee Firm of the Year’ at the 2020 Irish Pensions Awards.

These awards honour excellence within the Irish Pensions Industry.

In their deliberations the Panel of industry experts acknowledged Harvest Trustees’ proven experience and knowledge in their field, as well as their enthusiasm and passion for meeting the highest standards in Trusteeship.

Harvest Trustees was established in 2000 as a professional trustee company, and acts as Trustee to over 900 corporate pension structures.

These structures include both the Small Self-Administered Schemes (SSAS) and Self-Administered Personal Retirement Bonds provided to clients of Harvest Financial Services Ltd.

Harvest Trustees Ltd also provide consultancy services to Trustee Boards and lay Trustees to offer support and technical expertise where complex pension issues or conflicts of interest arise. They always aim to act in the best interests of beneficiaries and to provide the highest standard of service.

At Harvest Financial Services we pride ourselves on offering clients straightforward Retirement and Financial planning advice. Your private pension fund is just one (important!) aspect of your overall Retirement Plan.

Our technical expertise and focus on cost transparency, combined with Harvest Trustees’ prudent approach to Trusteeship offers you peace of mind and comfort that this aspect of your Retirement Plan is under control.

For transparent, comprehensive retirement advice contact Harvest today on 01-2375500 or email justask@harvestfinancial.ie.

Pension Awards

Retiring from a Group Company Pension Scheme

Retiring from a Company Pension Scheme

Retiring from a Company Pension Scheme Part 2 – Investing for Income and Understanding the Risks

In Part 1 of our blog on “Retiring from a Group Company Pension Scheme” we looked at determining your income requirement in retirement and at establishing the sources of this income. We also looked at the various lump sum options and the taxation treatment of income for those over age 65. 

Next we need to look at how investment returns will affect your income over retirement and the risks to this income.

There are risks inherent in every retirement plan., no matter what efforts you make to mitigate against them. Understanding the risks, and how they will affect your income throughout retirement is crucial. If you are risk averse and think that you are taking on no risk, by perhaps holding your funds in cash, you need to understand that this is not the case – you are just taking on different risks.

So what are some of these risks?

  • Longevity Risk

While we have rising life expectancies which is undoubtedly good news, this means you will hopefully be in retirement for a long time. A male reaching age 66 has a life expectancy of 17 years; and some 3 years longer for females. Statistically speaking 50% of people will live longer than this. So, it is essential that you consider carefully the risk of outliving the money you set aside for retirement.

  • Inflation Risk 

You can think of inflation like an acorn. It starts out small, but given enough time can turn in to a mighty oak tree! A seemingly small inflation rate of say 3% will erode the value of savings or the purchasing power of your income by almost 40% over 20 years. The impact is significant over time and the only antidote to inflation is investing in growth or ‘real’ assets like equities, property or bonds, that aim to provide a return on the member’s capital in excess of inflation.

  • Investment Risk

It is essential that you understand how much ‘risk’ you need to take to meet your income goals. This helps understand the trade-offs of investing and the potential consequences of your decision.

Understanding the risk of not achieving the expected return and how it might impact on your income in retirement is critical to making sure that you can enjoy retirement without running out of money; but equally that you are not afraid to draw down the level of income you need to enjoy the lifestyle you want in retirement.

  • Sequencing Risk

Even when the expected annual return is achieved, how the return is achieved over time is a risk. An example of this is the risk of a poor sequence of returns and how it can influence retirement out comes.

Where you are exposed to real assets with the potential for growth, there is a risk that the value of the fund will fall. If the portfolio is well diversified and the asset allocation is right for your risk profile, this should be a cyclical loss and the assets should recover their value. But a permanent loss can be crystallised if you need to draw income from the fund at the wrong time. The fund will have to perform that much better in future in order to recover that loss.

Where you are taking regular income withdrawals form the fund the order of ‘good’ and ‘bad’ years of returns really matters.

Looking at an example of a member retiring with €350K, taking income of €20K a year and assuming an average return of 3.6% per annum.

If the return is linear, i.e. 3.6% return each year, the ARF runs out at age 92 (orange line).

If the member has a ‘good’ sequence of returns in the early years, the ARF runs out at age 96 (blue line).

But reverse the sequence of returns and the ARF runs out at age 84 (yellow line).

Retiring from a Group Company Pension Scheme

Source: BNY Mellon

All 3 scenarios have the same average rate of return but very difference outcomes so it is clear that a big part of retirement planning is planning for your income drawdown.

When you are retiring from a group pension scheme you should plan to be in retirement for 20+ years. Over that time your income requirements will change; your investment returns may be different each year and your appetite for risk may change. What won’t change is the need to have a financial plan in retirement and to regularly review it.

Our role as financial planners is to work with you to make sure you have clarity about the level of income you can expect in retirement, confidence that it is achievable in the long term and direction as to how it will be achieved.

If you are retiring from a company pension scheme and would like to find out more about how we work with members, call us on 01 2375500 or email justask@harvestfinancial.ie

Defined Benefit Pension Scheme – Retiring from a Company Pension Scheme

Investing in Times of Crisis

Defined Benefit Pension Scheme

Retiring from a Company Pension Scheme

Part 1 – Determining your Income Requirement

If you are in a company pension scheme and are approaching retirement you will soon have some big decisions to make. Between you and your employer you have made a large financial commitment to the scheme over your working life. With a 20 year plus time horizon for most in retirement, how can you make the most of these savings to ensure that you can secure your income and live the lifestyle you want in retirement?

The first step is to understand what type of pension you have. It may be a Defined Benefit pension, where you will receive a percentage of your salary for the rest of your life from the date of retirement; or a Defined Contribution pension where you will have a capital sum at the date of retirement to provide your own income.

The next step is to determine your income requirement in retirement. Having a realistic estimate of what your expenses will be in retirement is important because it will affect how much you need to withdraw each year and how you invest your fund.

It’s not unusual that people will understate their expenses and overestimate the income they expect from the pension.

The danger of this is that if you understate your expenses, you easily outlive your fund, but equally if you’re over cautious on expenses, you can risk not living the lifestyle you want in retirement.

Next we need to look at where the retirement income will come from. We need to distinguish between the different sources of income as there will be different advice requirements, particularly for private pensions; and different tax treatments where personal assets are being used to fund the retirement and the State Pension entitlement.

  • State Contributory Pension – the full pension entitlement is almost €13,000 per annum and forms the bedrock for most retirement income projections.
  • Income from personal assets – this may be income produced by the asset, e,g, rental income, or a draw down of the capital. The tax treatment needs to be determined to quantify the net income that will be received – it may be taxed as income tax (up to 52%), exit tax on funds (41%) or Capital Gains Tax (33%).
  • The third source of income may be from private pensions. There will be very different advice requirements if you are retiring from a
    • Defined Benefit Scheme or a
    • Defined Contribution Scheme.

For Defined Benefit pension schemes advice may be required on the lump sum decision – whether to commute the pension or take it from AVCs?

Where to invest those AVCs, for example if there are no pension increases in retirement how can they be invested to best protect the income against inflation?

Or there may be a transfer value offer from the Defined Benefit Pension that you want to consider and this decision will be very personal to each individual.

Defined Benefit Transfer considerations might include:

The hurdle rate – what investment return is needed to replace the income foregone?

Your health. If life expectancy is reduced do you want to preserve the capital?

Spouse’s pension. Whether or not one is payable and if it would be sufficient?

For Defined Contribution schemes the decision on taking an Approved Retirement Fund (ARF) versus an annuity is always a consideration, particularly for the purpose of comparing the lump sum entitlements with each option. While the ARF option will offer greater flexibility of income drawdown and capital preservation, and as markets fall, income may fall and you need to be aware of the risks.

When we have established your sources of income, gone through the lump sum options and the taxation treatments we can now paint a picture for you of how your income will be paid in retirement. We then need to look at how investment returns will affect your income during your retirement. This will be covered in our next blog Retiring from a Group Company Pension Scheme: Part 2 – Investment Risks and Income.

Should you require financial advice on a Defined Benefit Pension or Defined Contribution Pension, please contact Harvest Financial Services on 01 2375500 or email justask@harvestfinancial.ie to speak to one of our professional advisors.

ESG Investing – Markets Update

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Tel: +353 (0) 1 237 5500, Fax: +353 (0) 1 237 5555. Email: justask@harvestfinancial.ie