QFA Pensions 2018/2019 Lecture Workshop Day Look at chapters - - PDF document
04/12/2018 QFA Pensions 2018/2019 Lecture Workshop Day Look at chapters Slides and manual Questions Your question Examples Calculations Approaching the exam On time Calculatorsimple Pencil and rubber given Exam paper & Answer
Look at chapters Slides and manual Questions Your question Examples Calculations
On time Calculator…simple Pencil and rubber given Exam paper & Answer sheet Ignore others
Time Time ‐just over a minute
‐Tougher…longer mark and go back
Focus and Concentrate Use your pencil Watch out for key words Reading the question Starting off Read Twice Key Words Capitalised……nots
For each correct answer a candidate will score 3 marks For each incorrect answer a candidate will score ‐1 mark (minus one mark) For each unanswered question a candidate will score 0 marks The exam will be marked out of 300 marks (100 x3 =300) 40%= 120 Marks
100 x 3 =300 100% 80 x 3 =240 – 20 = 220 73% 60 x 3 =180 ‐40 =140 47% 55x3 = 165 ‐45 = 120 40% 50 x 3 = 150 ‐50 = 100 33 40 x 3 = 120 …none wrong 40
Regular Study (Early morning) Make Notes Use Coloured Markers Join a study group Use Mind Maps Think how it Think how it affects your life Use Technology
State Pension
Private Provision
Personal Savings & Investments Earnings in retirement
Tax relief on contributions Tax relief on contributions Tax free investment return Tax free investment return Tax free lump sum at retirement Tax free lump sum at retirement
Limit of €200,000 Within limits
Which one of the following is earned income? A Credit union share dividends B Rental income C Income from a self employed trade D Gain on the sale of an investment property
Social Insurance
Must meet PRSI contribution conditions State Pension (Contributory) Survivor’s pension Invalidity Pension
Social Assistance
Means tested State Pension (Non Contributory) Survivor’s pension Disability Allowance
PRSI Class Covers A1 Most employees in the private sector. Civil and public servants recruited after 6th April 1995. B1 & D1 Permanent civil servants recruited before 6th April 1995 S1 The self employed and proprietary directors.
Year of Birth Up to & incl 1954
66
1955‐60
67
1961 and later
68
PRSI classes A and S. Class B don’t qualify Pension €243.30 pw max Means tested No Qaulification conditions Yearly average of at least 10 week PRSI contributions;
1/40th for each year of PRSI contributions Adult dependant supplement Means test related to dependant’s weekly income. Income tax Liable to income tax but not USC; PAYE not deducted at source
PRSI qualification conditions No Pension (max) €232 pw (under 80) Means tested
‘weekly means’ Qualified adult supplement Yes Income tax Liable to income tax but not USC; PAYE not deducted at source
PRSI classes A, S, B & D Either deceased or survivor’s PRSI record can qualify Conditions Not cohabiting. Ceases if remarries or new civil partnership Means tested No Income tax Liable to income tax but not USC; PAYE not deducted at source
PRSI classes No PRSI requirements Conditions Not cohabiting. Ceases if remarries or new civil partnership. No dependant children. Means tested Yes Income tax Liable to income tax but not USC; PAYE not deducted at source
Class S PRSI applies to which one of the following? A Frank, a Garda who joined the public service in 1990 B Paula, a self employed dentist C Fiona, a civil servant, who joined the public service in 2008 D Owen, who is an employee of a large Bank in the private sector. Which one of the following groups are NOT covered for the State Pension (Contributory)? A Employees in the private sector B Public service employees who joined the public service before 6th April 1995. C Public service employees who joined the public service after 6th April 1995. D Proprietary directors in the private sector.
Retirement Annuity Contracts (RACs)
provided by life assurance companies only
Personal Retirement Savings Accounts (PRSAs)
provided by life assurance companies and by investment firms
Contributions Retirement Fund Provider
Has a source of ‘relevant earnings’ in the current tax year Had a source of ‘relevant earnings’ in a past tax year and paid an RAC/Section 785 contribution in that year Relevant earnings : self employed trade/profession earnings & non pensionable employment earnings
Anyone … but income tax relief only allowed against relevant earnings
No relief for USC or PRSI Max Net Relevant Earnings : €115,000
Age attained during year Tax relief limit (% of Net Relevant Earnings) Less than 30 15% 30 to 39 20% 40 – 49 25% 50 – 54 30% 55 – 59 35% 60 and over 40%
30% rate also applies to professional sports earnings under age 50
Employer contribution BIK for income tax
USC
Claim income tax relief
contribution, within limits
RAC/PRSA contributions not allowed for income tax relief in 2018
Allowed as a deduction against relevant earnings in 2019
Backdated and deducted for income tax against 2017 relevant earnings RAC/PRSA contributions paid in 2018 Must opt to backdate before the 31st October (mid November if paying AND filing tax online with the online ROS system)
Initial Renewal Trail
Maximum 5% contribution charge Maximum 1% pa annual fund charge
No maximum charges
A measure of the impact of charges in terms of the equivalent annual reduction in investment return
Before age 60
Permanent incapacity at any age From 50 for certain
PRSA: voluntary early retirement from an employment, from 50
60 to 75
Anytime between these ages; no requrement to give up work
If not receiving pension of €12,700 pa or have previously invested €63,500 in an AMRF or annuity
First 25%
€200k
at standard rate
Next €63,500
Minimum Retirement Fund (AMRF), or
Balance
sum, or
Retirement Fund (ARF), or
If not receiving pension of €12,700 pa or have previously invested €63,500 in an AMRF or annuity
First 25%
€200k
at standard rate
Next €63,500
fenced amount
Balance
ring fenced amount
Generic Disclosure Notice Specific Disclosure Notice Annual statement of value
Preliminary Disclosure Certificate (PDC) Statement of Reasonable Projection (SORP) Half yearly Invesment Report + Statement of Account Annual SRP
Standalone
to an RAC
Standalone
to an RAC
Associated
Associated
Own life only Life cover only, payable to estate Can not be assigned Cover can not extend beyond 75
A Pension Term Assurance policy can provide which one of the following benefits? A Life cover to age 80 B Joint life cover C Life cover to age 75 D Serious illness cover Joe is employed by a small shop and contributes to an RAC. What is the earliest age he can take retirement benefits from the RAC, assuming he remains in good health? A 50 B 55 C 60 D 65
Defined Benefit (DB)
Promises a retirement benefit related to the member's earnings Final salary Career average
Defined Contribution (DC)
A retirement fund is built up for each member from invested contributions. No promise on level
benefit which may be provided by the fund at retirement.
the amount of contributions paid in how long the contributions are invested investment return earned charges
Insured Self Administered
Benefits/ contributions based
Pensionable salary = Actual salary less a State Pension offset
Benefits/ contributions based
Employer Employees Schedule E Remuneration Former employees can also be included
Member pension Retirement lump sum Death in service lump sum Survivor’s pension
No relief for USC or PRSI Max remuneration: €115,000
Age attained during year Income Tax relief limit (% of Remuneration) Less than 30 15% 30 to 39 20% 40 – 49 25% 50 – 54 30% 55 – 59 35% 60 and over 40%
Gross Remuneration Less employee scheme contributions, within limits Remuneration subject to income tax
Special Contribution / Ordinary Annual Contribution
Tax relief spread over a number of years, max 5
Spread Period: If < 2 : Round up to 2 years If > 2 : Round to nearer number of years
Special Contribution / Ordinary Annual Contribution
OAC = €7,500 SP : €20,000
Spread Period: €20,000 / €7,500 = 2.67 years, rounded up to 3 years Relief allowed : Yr 1 : €7,500 Yr 2 : €7,500 Yr 3 : €5,000 Spread Period: €20,000 / €7,500 = 2.67 years, rounded up to 3 years Relief allowed : Yr 1 : €7,500 Yr 2 : €7,500 Yr 3 : €5,000
Special Contribution / Ordinary Annual Contribution
OAC = €20,000 SP : €65,000
Spread Period: €65,000/ €20,000 = 3.25, rounded down to 3 years Relief allowed : Yr 1 : €21,667 Yr 2 : €21,667 Yr 3 : €21,667 Spread Period: €65,000/ €20,000 = 3.25, rounded down to 3 years Relief allowed : Yr 1 : €21,667 Yr 2 : €21,667 Yr 3 : €21,667
Revenue Max Pension x Factor less (fund + retained benefits) / Term to NRA
Example : Male NRA 60, married. Age 40. Revenue Max Pension : 2/3rds x €90,000 = €60,000 pa Existing fund : €200,000 Retained benefits : Nil Max OAC = (€60,000 x 32.4 ‐ €200,000) / 20 = €87,200 pa Example : Male NRA 60, married. Age 40. Revenue Max Pension : 2/3rds x €90,000 = €60,000 pa Existing fund : €200,000 Retained benefits : Nil Max OAC = (€60,000 x 32.4 ‐ €200,000) / 20 = €87,200 pa
On ill health retirement At any time ‘physical or mental deterioration ... serious enough to prevent the individual from following his/her normal employment or which very seriously impairs his/her earning capacity’ On voluntary early retirement On retirement from 50 onwards On Normal Retirement Age Age set in scheme rules, between 60 and 70 No need to retire; benefits can be taken and the member can work on
Up to 150% x final remuneration Tax free Lump Sum Balance Annuity
If not receiving pension of €12,700 pa or have previously invested €63,500 in an AMRF or annuity
First 25%
€200k
at standard rate
Next €63,500
Minimum Retirement Fund (AMRF), or
Balance
sum, or
Retirement Fund (ARF), or
Traditional Benefit Option OR ARF Option Tax free lump sum 150% x €80,000 = €120,000 25% X €200,000 = €50,000 Balance €80,000 must be used to buy an annuity €63,500 to AMRF or annuity €86,500 take as taxable cash or transfer to ARF
The member’s final remuneration The member’s completed service whether benefits are being taken at NRA or on early retirement any other retained benefits the member may have
Average of total emoluments for 3 or more* consecutive years ending no later than 10 years before NRA * Can’t be less than 3 – could be more
Years of service completed with employer by Normal Retirement Age ‘Uplifted Pension’ as a fraction of final remuneration 1 1/10th x 2/3rds 2 2/10th x 2/3rds 3 3/10th x 2/3rds 4 4/10th x 2/3rds 5 5/10th x 2/3rds 6 6/10th x 2/3rds 7 7/10th x 2/3rds 8 8/10th x 2/3rds 9 9/10th x 2/3rds 10 + 2/3rds
Maximum approvable pension Open market annuity rate for maximum approvable type of pension €30,000 2.0% €1,500,000
Maximum approvable pension at NRA Open market annuity rate for maximum approvable type of pension
€30,000 x 20/25 1.80% €1,333,333
N NS
Years of service completed by NRA Maximum lump sum as a fraction
any retained lump sums) 1 ‐8 3/80th for each year of service 9 30/80ths 10 36/80ths 11 42/80ths 12 48/80ths 13 54/80ths 14 63/80ths 15 72/80ths 16 81/80ths 17 90/80ths 18 99/80ths 19 108/80ths 20 120/80ths
4 x final remuneration + refund of employee contributions (+ interest) Example : Final remuneration = €100,000 Max lump sum death in service = 4 x €100,000 = €400,000
Currently an employee AND A member of employer’s pension scheme
Employer Benefits AVCs
Revenue Maximum
DC fund < Revenue maximum Pensionable remuneration may exclude bonuses, overtime, etc. DB scheme integrated with State Pension Short service
Standalone PRSA To employer pension scheme To separate AVC trust scheme
Employer DC Scheme Benefits
Traditional
AVCs: Lump sum within Revenue Limits AVCs: Balance to AMRF/ARF/ Taxable lump sum
ARF
AVCs: Lump sum: 25% AVCs: Balance to an AMRF/ARF/ Taxable lump sum
Ordinary Scheme Contribution AVCs
Can not exceed personal tax relief limit for that tax year
Annual Benefit Statement Statement of Reasonable Projection On other events
Retain in the scheme
can take benefits immediately, if
later right up to NRA But some DB schemes may not allow preserved pension to be taken until NRA
Take a transfer Take a transfer value to another scheme
the individual may be moving jobs and the fund can be transferred to a new employer's scheme
Take a transfer value to a Buy Out Bond
an individual DC arrangement can be drawn
time and in the same way as if the fund had been left in the
scheme, e.g. from 50
Take a transfer value to a PRSA
the individual has been an active member
for less than 15 years AVC benefits can be transferred to a PRSA even if member has more than 15 years active scheme service Certificate
Comparison required
Basic exemption: €10,160 + €765 for each complete year SCSB : N/15 x (average annual remuneration) – Present value of pension scheme Lump Sum Increased : Basic + max of €10,000
N / 15 Average annual emoluments over last 36 months
Present value of tax free pension lump sum entitlement
If waiver signed
AVCs can NOT be paid to which one of the following? A A non Standard PRSA B A DC occupational pension scheme C A DB occupational pension scheme D An RAC A proprietary director’s total emoluments must be averaged over what MINIMUM period to calculate their final remuneration for Revenue maximum benefit purposes in an employer pension scheme? A 2 years B 3 years C 5 years D 10 years Peter is taking voluntary early retirement after 22 years service, at age 58. His NRA is
If his final remuneration is €80,000 pa and he has no retained benefits, what is the maximum immediate lump sum his employer’s scheme can pay him? A €100,000 B €110,000 C €120,000 D €200,000
PRSA
Employer scheme PRSA Overseas Scheme
RAC
RAC PRSA
Employer scheme
Employer scheme PRSA* Overseas scheme Buy Out Bond
Buy Out Bond
Buy Out Bond Employer scheme
PRSA RAC Buy Out Bond RAC Buy Out Bond Employer scheme Employer scheme RAC Buy Out Bond PRSA RAC An RAC can NOT be transferred to a(n): A Buy Out Bond B Non Standard PRSA C Another RAC D Standard PRSA
Cash Bonds Equities Property
Private Equity Precious metals Works of Art. Collectible coins, vintage wine, etc. Commodities. Foreign currencies Infrastructure
Source: Barclays Capital Equity Gilt Study 2017
Life company unit funds Unit Trusts Investment Companies UCITS
Equities & Property Bonds Cash
Equities/Property Cash/Bonds Age Retirement
Fund Switching
OR
Lifestyle Fund
Standard PRSA Non Standard PRSA Default fund Default fund Pooled Pooled Other funds Other funds Pooled No restriction
CAN include self invested & guaranteed/smoothed funds
Group DC schemes can only offer funds which are predominantly invested on regulated markets
Which one of the following can NOT invest in a Self Invested Fund? A A Standard PRSA B A non Standard PRSA C An RAC D A one member DC scheme
A passive investment fund aims to: A Outperform the market B Underperform the market C Match market returns D Achieve a return higher than inflation
Divorce Judicial Separation Dissolution of a civil partnership Ending of a period of co-habitation
trustees Pension Adjustment Order
retirement benefits contingent benefits
benefit accrued during the relevant period
a period during which retirement benefits built up
PAO can only apply to part of retirement benefits built up during the relevant period
Individual’s arrangement PAO beneficiary can take his or her benefits in a PRSA or BOB: An employer pension scheme From the individual’s 50th birthday A Buy Out Bond From the individual’s 50th birthday Retirement Annuity From the individual’s 60th birthday
Transfer value must be paid to PAO beneficiary’s estate within 3 months
Transfer value must be paid to PAO beneficiary’s estate within 3 months
On death : 60% of lump sum death benefit paid to PAO beneficiary
Specified % : 60% PAO over scheme death in service lump sum
Property Adjustment Order
A PAO can NOT be made over an ARF
A different type of Order called a Property Adjustment Order can be made instead
A Pension Adjustment Order can NOT be applied to a(n): A Retirement Annuity B State (Contributory) Pension C Buy Out Bond D Section 785 policy Mary has a PAO over Jack’s PRSA. If she dies before getting a share of his PRSA, what happens? A Nothing; the PAO lapses B Mary’s estate must seek a new PAO over the PRSA C Mary’s estate become a creditor of Jack D A transfer value must be paid from the PRSA to her estate
Schedule Type of Income E Employment salary/wages, BIKs, Pensions/annuities D – Case I Self employed occupation D – Case II Self employed profession D – Case III Income from foreign investments D – Case IV Deposit interest subject to DIRT F Dividends from Irish companies
Earned Income Earned Income
Income Rate First €12,012 0.5% Next € 7,360 2.0% Next €50,672 4.75% Over €70,044 8% + 3% (self employed non
PAYE income > €100,000) Reduced rate of 2.5% applies to :
USC exemption if total income < €13,000
Balance of benefits taxable 7th December 2005 Income Tax @ 40%
Date Standard Fund Threshold applying Personal Fund Threshold which could have been obtained at that date 7th December 2005 €5m > €5m 7th December 2010 ‐ €2.3m €2.3m ‐ €5.4m 1st January 2014 €2.0m €2.0m ‐ €2.3m
1st January 2014 Annual Pension x 20 Annual Pension x age related factor; 37 at 50 reducing to 22 at age 70 and over Example : €40,000 pension accrued at 1st January 2014 Value = €40,000 x 20 = €800,000 Example : €20,000 pension accrued after 1st January 2014. Age at retirement : 65 Value = €20,000 x 26 = €520,000
[higher rate income tax rate x chargeable excess LESS any standard rate tax deducted from retirement lump sums taken since 1st January 2011, which has not already been offset against a chargeable excess tax liability.]
Deemed crystallised at 75
Based on value at age 75 No benefits can be taken after age 75
Schedule D Case V covers which of the following types of income, for income tax purposes? A Rents from an Irish property B Income from a self employed profession C Rents from a UK property D Deposit interest subject to DIRT Frank previously took benefits of €1.5m from an SSAS in 2013 and had an unvested PRSA valued at €1.0m at 1st January 2014. What is the maximum PFT Frank could have applied for at 1st January 2014? A €2.0m B €2.2m C €2.3m D €2.5m
Lump sum (purchase price) secures a guaranteed income for life from a life assurance company … longevity insurance
Example ‐ Male 65 level annuity Annuity rate : 4.00% Purchase price : €150,000 Guaranteed income for life : €150,000 x 4.00% = €6,000 pa
Example ‐ Male 65 level annuity Annuity rate : 4.00% Annuity required: €8,600 pa Purchase price: €8,600 / 4.00% = €215,000
Age Health Type of annuity Bond yields Investment amount
Higher annuity rate offered because of reduced life expectancy
If the annuity rate for the type of annuity Lynne wants is 4%, how much capital will she need to secure an annuity of €9,000 pa? A €36,000 B €63,500 C €195,000 D €225,000 An enhanced annuity is an annuity which pays
A A higher income, to reflect the individual's reduced life expectancy. B A return of the sum invested, on death within the first 10 years C A separate income to two different people D A higher income, if the individual develops a serious illness in retirement
Pension Arrangement
Personal Investment Account
ARF
Managed by a QFM
Withdrawals subject to PAYE & USC + PRSI up to age 66
A forced tax charge over age 60 unless actual withdrawals during year exceed: Age in tax year ARFs & vested PRSAs < €2m ARFs & vested PRSAs > €2m 61 to 70 4% 6% 71 and over 5% 6% Based on value at 30th November
Example : ARF value @ 30th November 2017 : €200,000 Age : 68 Actual withdrawals in 2017 : €3,000 Imputed distribution liable to income tax deduction: 4% x €200,000 less €3,000 = €5,000
Age in tax year ARFs & vested PRSAs < €2m ARFs & vested PRSAs > €2m 61 to 70 4% 6% 71 and over 5% 6%
return is less than expected
individual lives longer than expected
investment risk return is less than expected longevity risk individual lives longer than expected
Optional withdrawals up to 4% pa, subject to PAYE & USC No imputed distributions
Turns into an ARF
Earlier of death, receiving pension income
and age 75
Another ARF opened by spouse/civil partner
Income Tax
Inheritance Tax
Spouse/civil partner direct
as deceased's income in the year of death
Inheritance Tax
Child of deceased,
tax charge
Inheritance Tax
Child of deceased, under age 21
income tax
Inheritance for Inheritance Tax, with benefit of any unused Threshold
To anyone else
taxable inheritance for Inheritance Tax purposes, with benefit of any unused Threshold
Child of deceased, over age 21
charge
Inheritance Tax
Child of deceased, under age 21
for Inheritance Tax, with benefit of any unused Threshold
To anyone else
charge
inheritance for Inheritance Tax purposes, with benefit of any unused Threshold
Paula is aged 68 and has taken a withdrawal from her ARF. The withdrawal is NOT subject to : A Income tax B PRSI C USC D PAYE Paula is aged 68 and has takes a withdrawal from her ARF. The withdrawal is NOT subject to : A Income tax B PRSI C USC D PAYE
Which one of the following transfers is NOT allowed? A A full transfer from one AMRF to another AMRF B A partial transfer from one ARF to another ARF C A partial transfer from one AMRF to another AMRF D A transfer from a vested PRSA to an AMRF
The Pensions Authority Revenue Commissioners Central Bank
DB and DC schemes Registered Administrators PRSAs (jointly approved with Revenue) Guidance PRSA activities of PRSA providers
Employer Pension Schemes RACs Buy Out Bonds PRSAs (jointly with Pensions Authority)
Banks Life assurance companies MIFID investment firms Retail investment intermediaries Insurance intermediaries
financial loss arising from maladministration Dispute of fact or law
Occupational Pension Schemes & PRSAs
Complaint
financial institution
Internal Resolutions of Complaints Procedures
Pensions Ombudsman
unresolved by internal resolution of disputes procedures
“ … reason to believe that material misappropriation or fraudulent conversion of an
PRSA resources has occurred, is
The Pensions Ombudsman can investigate which one of the following complaints? A A complaint about the poor investment returns of a PRSA B A complaint about a fund switch instruction which was not carried out on an ARF C A complaint about the way a PRSA claim was administered, leading to an alleged financial loss. D A complaint about the way an RAC was sold to the complainant The Pensions Ombudsman can investigate which one of the following complaints? A A complaint about the poor investment returns of a PRSA B A complaint about a fund switch instruction which was not carried out on an ARF C A complaint about the way a PRSA claim was administered, leading to an alleged financial loss. D A complaint about the way an RAC was sold to the complainant
Inflation Increase in the price of an average basked of goods and services Deflation Decrease in the price of an average basked of goods and services
Obtain a real investment return Increase in earnings Retirement income needs to increase
€1,000 today €1,000 10 years from now
Will NOT purchase the same value of goods & services as €100 can today
After Accumulated Value of €1,000 @1.5% pa @ 2.5% pa @ 5% pa
5 yrs €1,077 €1,131 €1,276 10 yrs €1,161 €1,280 €1,629 15 yrs €1,250 €1,448 €2,079 20 yrs €1,347 €1,639 €2,653 25 yrs €1,451 €1,854 €3,386 Accumulated value of €5,000 after 10 years at 5% pa = 5 x €1,629 = €8,145
€1,000 payable after
Present Value Today @ 1.5% pa @ 2.5% pa @ 5% pa
5 yrs €928 €884 €784 10 yrs €862 €781 €614 15 yrs €800 €690 €481 20 yrs €742 €610 €377 25 yrs €689 €539 €295 Present value of €5,000 payable after 15 years at 3% pa = 5 x €690 = €3,450
If €10,000 is invested today at a fixed return of 5% pa, what amount will it have accumulated to after 18 years? A €13,070 B €15,600 C €22,290 D €24,070
RAC PRSA
Who can take out?
Must have or have had source of relevant earnings to take out and continue contributing. Anyone. However tax relief only available against relevant earnings.
Who can contribute
Only the individual normally. The individual, or Employer, or Individual and employer
Tax relief on employer contribution
‐
be claimed as personal contribution. No USC or PRSI liability
RAC PRSA Fund choice
No restrictions. No Default Standard PRSA can only invest in ‘pooled funds’. Default investment strategy. Charges No restrictions. Charges can only be a %
% of the fund. No cash charges. Standard PRSA: max of 5% of contribution + 1% pa of fund. Other restrictions
charges AVCs No
PRSA
RAC PRSA
Life cover Can be added with Pension Term Assurance cover, either on an inclusive or exclusive of PPP fund basis. Pension Term Assurance cover can not be added
Transfers in From another RAC only From : A RAC A PRSA An occupational pension scheme* When benefits can be taken on early retirement before 60 Permanent incapacity. Permanent incapacity. Employees on early retirement from 50
Retain in DC Scheme Transfer to BOB Transfer to PRSA Transfer to another Scheme Charges
? Exit and entry charge? Exit charge? No initial charge
payment to PRSA Exit and entry charge?
Investment Options
? ? Narrow range
Standard PRSA ?
When can benefits be taken?
Retirement from 50
On earlier ill health early retirement. Between NRA 60 and 70. As scheme From 50
early retirement from new employment. On permanent incapacity. Between 60 and 75. Retirement from 50
scheme. On earlier ill health early retirement. Between NRA 60 and 70.
Retain in DC Scheme Transfer to BOB Transfer to PRSA Transfer to another Scheme Death
Full value payable to estate. Full value payable to estate. Full value payable to estate. Limit
4 x final remuneration as a lump sum. Any balance has to be used to buy annuity for spouse/ dependants.
Benefit
ARF
traditional benefit. ARF
traditional benefit. ARF only. ARF
traditional benefit
total new scheme benefits.
Traditional Benefit Option ARF option Lump sum
Up to 150% x final remuneration (inclusive
depending on completed service and whether normal
early retirement 25% of fund
Balance
Must be used to buy an annuity Can be transferred to an AMRF/ARF and/or be used to buy an annuity.
Advantages Disadvantages
Preservation of capital on death Must withdraw at least 4% pa over age 60 Income flexibility No guaranteed income. Bombout risk Defer annuity purchase Risk that annuity rates could fall further Can invest in equities and property
protection.
Advantages Disadvantages
Guaranteed income for life Loss of capital on death. Lack of income flexibility No ongoing investment risk Timing risk on purchase of annuity. Choice of annuity types Inflation risk, if level annuity purchased
ARF Annuity Income certainty
income likely to vary from year to year and to decline
Yes.
Monetary income fixed and certain and known in advance.
Preservation of capital on death
Yes.
Remaining ARF balance on death becomes asset of deceased’s estate
death within the guarantee period and/or a continuing pension to surviving spouse/civil partner.
Range of investment funds Other benefits Charges Default risk
A Standard PRSA differs from an RAC in relation to which one of the following factors? A Potential access to retirement benefits before age 60 B The maximum tax free lump sum which can be taken C The amount to be transferred to an AMRF D Tax relief limits
Which of the following charges can NOT be made to a PRSA? A €100 B 3% of a regular contribution C 0.75% of the fund value D 2% of a once off contribution
Tied to one life assurance company Employee Tied agent Providing Fair Analysis advice Sufficiently large number
Neither tied or providing fair analysis advice Narrower range of contracts
Competent and capable Minimum Competency Code honest, ethical and to act with integrity Financially sound
Investment Intermediaries Act 1995 MIFID Regulations
Shares listed on a Stock Exchange Bonds listed on a Stock Exchange Collective Investment Funds Tracker Bonds Transferable securities Money market instruments Collective investment funds Options, swaps, Derivatives Contracts for Difference (CFDs)
Monitor and review Make suitable recommendation Devise a strategy Identify, quantify and priortise financial needs and objectives Determine consumer's circumstances
Needs and Objectives Personal Circumstances Financial situation
Step 1
current earned income to retirement
Step 2
% of earned income to be replaced
Step 3
existing retirement provision
Step 4
additional contribution required to make up shortfall
considered by the advisor all products which are suitable for the consumer’s needs, and which the advisor can offer advice on, must be considered from the range of suitable products the advisor can advise on, the advisor must recommend the ‘most suitable’ product
Suits the client’s needs Client can afford the financial commitment Client can bear the financial risks Investment funds consistent with client’s attitude and capacity for risk
Age Current investment portfolio Investment experience Financial capacity to lose capital Purpose and term of investment Term to retirement Other financial needs and objectives
the reasons why a financial product offered to a consumer is considered to be suitable to that consumer;
the reasons why the financial product options contained in a selection of product options
consumer are considered to be the most suitable to that consumer; or the reasons why a recommended financial product is considered to be the most suitable product for that consumer.
Knowing the Consumer and Suitability do not apply where:
both the policy type and life company by name, and
assistance from the advisor in the choice of that policy or life company
In order to be classified as an Execution Only transaction under the Consumer Protection Code, the consumer must have specified to the adviser the type
A his or her attitude to risk B The life assurance company C the status of advice required D how many other policies he or she has taken out in the past.