The Minister for Finance, Brian Lenihan T.D., today announced that he is to provide an option for members of Defined Contribution occupational pension schemes to defer the purchase of a retirement annuity with their pension funds for a specified two year period. Under current arrangements, members of Defined Contribution occupational pension schemes are, in general, obliged to purchase an annuity immediately upon retirement with their pension fund after taking their tax-free lump sum.
The Minister said: “I am conscious of the difficulties facing many members of Defined Contribution schemes who are retiring at the present time and whose pension funds have been very badly affected by the falls in equity markets and the more general falls in asset values over the recent past. I propose to remove the obligation on those individuals to purchase an annuity immediately on retirement and to give them the breathing space, if they so wish, to make a choice on when to purchase the annuity.
I should stress that in giving individuals the option to purchase the annuity immediately or within the two year deferral period, there is no guarantee that they will get better value if they postpone the decision to purchase to a later date. Those individuals who are retiring now or approaching retirement should take this into account. In this regard and as part of this initiative, the Pensions Board will publish appropriate risk guidance in this matter in the near future”.
Under the deferral arrangement, which will be operated on an administrative basis by the Revenue Commissioners, members of Defined Contribution occupational pension schemes who retire in the period from 4 December 2008 to 31 December 2010 will have the option of taking their tax-free lump sum and purchasing a retirement annuity immediately on retirement or to take the lump sum and defer the annuity purchase, subject to agreement with their scheme trustee, up to and including 31 December 2010 by which date the concession of an option will end. 1
The Revenue Commissioners are finalising the detailed arrangements of this initiative with the pensions industry.
Earlier this week, Paula Clancy, director of the independent think tank Tasc, said the private pension system had failed and a new approach was needed which would be State-led rather than market-led, .
She was responding to Minister for Social and Family Affairs Mary Hanafin's comment that persons at retirement age who deferred the purchase of an annuity until the markets improved could rely on the State pension in the meantime.
Clancy said this statement, "represents a tacit acknowledgment that the private pension system has failed, and that the social welfare pension is the only reliable component of our pension system. This acknowledgment should inform a new approach to pension provision, which should be State-led rather than market-led," she added.
Irish pension managed funds fell by 4.7% on average during November. Eagle Star was the best performing manager over the month with a return of -3.4%. Irish Life Investment Managers delivered the worst performance over the month, with a return of -5.7%. So far this year, pension funds have declined a worrying 32.7% on average, while over the past year pension funds have lost 33.4%.
Fiona Daly, Managing Director of Rubicon Investment Consulting said this week:"Although recent reports on the state of the Irish pensions market are a source of concern, there is no need for members or trustees of pension schemes to panic. While many defined benefit schemes are likely to fail the funding standard over the next year, this does not mean that these schemes do not, or will not, have enough money to pay the benefits they have promised to their members."
