The question often arises as to "What is the 'Best' Pension/PRSA available on the market?"
The answer to this lies in the context to which the question is being asked. For example, does the person posing the question mean 'best' in terms of cost, flexibility, performance, or suitability in terms of their employment status? If we look at these factors in isolation it may shed some light in determining an appropriate response.
Cost
The lowest cost Pension/PRSA product is the one that has a competitive charging structure attaching to it. These tend to be the products that have a single charge ie. an annual fund charge only.
It should be noted that these products will probably be available on an 'Execution Only' Service basis. This means that there will be no advice sought by the consumer or given by the product provider/intermediary. You need to have a good understanding of what product suits you best and how to reconcile your attitude to risk with the funds available for investment.
Flexibility
You should look at the product in terms of how adaptable it is to suit your specific circumstances. Can you increase, decrease or stop contributions at will? Can you switch funds at little on no cost at any stage? If you need to transfer your Pension/PRSA to another product provider, can you do so without penalty? Is there a 'Default' or 'Phased' Investment Strategy available on the product?
Performance
Consumers tend to focus on historical performance figures when deciding on which product provider is 'best'. The point to remember here is that historical performance is just that; 'historical'. It bears no relationship whatsoever to what may happen in the future. Fund managers have good years and bad years. You should also remember that the Fund Managers don't stay with the same product providers indefinitely, they can, and do, work for different companies in their careers. If you have to consider 'performance' as a key factor in selecting a product provider, then you should probably look at the ones that are in the 'Semi-Finals' on a regular basis.
Suitability
If you have a choice on which Pension/PRSA is most suitable to your employment status, you should probably pay an Advisor a Fee to help you decide on which product type is 'best' for you. There is no single product available that can be described as the best for a Sole Trader, Employee, Director or Public Servant. It will all depend on your employment status at any particular time and you may have to settle for the product that offers you the greatest flexibility, should you ever switch jobs.
Friday, November 28, 2008
Friday, November 21, 2008
Exit Tax - FAQs
What is Exit Tax? It is a tax on the gain/profit you earn on life assurance savings, investment bonds (Tracker/Guaranteed or Unit-Linked) and protection policies that have a unit-linked element.
What rate is it charged at? From 01/01/2014 the rate will be 41%
When is it paid/due? It is paid/due when a 'chargeable event' takes place.
What is a 'chargeable event'? A claim, partial/full surrender, maturity or every 8th policy anniversary.
Who has responsibility for paying it? The Life Assurance Company pay the tax directly to Revenue. The company will write to you and notify you of the tax paid and quote the investment's current value.
I took out my investment policy before 01/01/2001, am I liable for Exit Tax? No. It only applies to policies taken out after this date. Prior to this date, the tax was deducted on an annual basis and paid by the life assurance company to Revenue.
My policy is worth less that amount invested on the 8th anniversary, is there any tax due? No.
Does my policy 'mature' on the 8th anniversary? No. Your policy will continue as before.
Can Exit Tax be offset against other tax liabilities in at the end of a tax year? No. However, where Exit Tax is paid as a result of a death claim it may be offset against an Inheritance Tax liability in the hands of the beneficiary.
Whats is the 'deemed encashment' date? The 8th Anniversary of the policy.
Is a 'deemed encashment' Exit Tax taken into consideration in calculating future exit tax liabilities on a policy? Yes.
Is the Exit Tax paid on a partial surrender before the 8th anniversary taken into consideration in calculating future tax liabilities on the policy? No. It is only taken into consideration for partial surrenders after the 8th anniversary.
Is anyone eligible to claim Exit Tax back from Revenue? Yes. The following people can reclaim Exit Tax a) a permanently incapacitated person who has invested a compensation payment from a personal injuries claim b) the trustees of a qualifying trust where the investment gains/profits are the sole or main income of the incapacitated person c) a thalidomide victim investing a compensation payment made by the Minister for Health.
If a client invested €10,000 on 01/01/2001 and then added €5,000 to the same policy on 01/01/2006, is the exit tax payable on the growth (if any) on €10,000 payable in January 2009 and on the €5,000 in January 2014? No. The tax is policy based so the allowable premiums (total premiums paid before the chargeable event) will be €15,000 in January 2009 for the purpose of calculating the Exit Tax due.
What rate is it charged at? From 01/01/2014 the rate will be 41%
When is it paid/due? It is paid/due when a 'chargeable event' takes place.
What is a 'chargeable event'? A claim, partial/full surrender, maturity or every 8th policy anniversary.
Who has responsibility for paying it? The Life Assurance Company pay the tax directly to Revenue. The company will write to you and notify you of the tax paid and quote the investment's current value.
I took out my investment policy before 01/01/2001, am I liable for Exit Tax? No. It only applies to policies taken out after this date. Prior to this date, the tax was deducted on an annual basis and paid by the life assurance company to Revenue.
My policy is worth less that amount invested on the 8th anniversary, is there any tax due? No.
Does my policy 'mature' on the 8th anniversary? No. Your policy will continue as before.
Can Exit Tax be offset against other tax liabilities in at the end of a tax year? No. However, where Exit Tax is paid as a result of a death claim it may be offset against an Inheritance Tax liability in the hands of the beneficiary.
Whats is the 'deemed encashment' date? The 8th Anniversary of the policy.
Is a 'deemed encashment' Exit Tax taken into consideration in calculating future exit tax liabilities on a policy? Yes.
Is the Exit Tax paid on a partial surrender before the 8th anniversary taken into consideration in calculating future tax liabilities on the policy? No. It is only taken into consideration for partial surrenders after the 8th anniversary.
Is anyone eligible to claim Exit Tax back from Revenue? Yes. The following people can reclaim Exit Tax a) a permanently incapacitated person who has invested a compensation payment from a personal injuries claim b) the trustees of a qualifying trust where the investment gains/profits are the sole or main income of the incapacitated person c) a thalidomide victim investing a compensation payment made by the Minister for Health.
If a client invested €10,000 on 01/01/2001 and then added €5,000 to the same policy on 01/01/2006, is the exit tax payable on the growth (if any) on €10,000 payable in January 2009 and on the €5,000 in January 2014? No. The tax is policy based so the allowable premiums (total premiums paid before the chargeable event) will be €15,000 in January 2009 for the purpose of calculating the Exit Tax due.
Thursday, November 13, 2008
Blogger Interview - Richard Bruton
What is the best business/investment decision you ever made? To buy my own home.
What kind of car do you drive? Toyota Corolla
What is the worst financial advice that you ever received? To buy CLF Yeoman
Do you own property abroad? No
How does the economic slowdown effect you? 5% pay sacrifice
Do you contribute to a pension plan? Covered by Public Policy Scheme in Dail
What's your favourite film of all time? 'Being There' with Peter Sellers
Have you ever won money? Yes - Liverpool in Champions League
Do you own your own home? Yes
Do you invest directly in the stock market, through funds or both? Have invested directly.
What is your preferred method/system of saving (Deposits, Funds,Shares, Property)? Shares had been!
What financial product/s do you consider to be bad value for money? Endowment mortgages and other high commission products.
Do you trust your bank? Yes, within their own area of competence, not necessarily as investment advisers.
Richard Bruton is Deputy Leader of Fine Gael and Spokesperson on Finance.
What kind of car do you drive? Toyota Corolla
What is the worst financial advice that you ever received? To buy CLF Yeoman
Do you own property abroad? No
How does the economic slowdown effect you? 5% pay sacrifice
Do you contribute to a pension plan? Covered by Public Policy Scheme in Dail
What's your favourite film of all time? 'Being There' with Peter Sellers
Have you ever won money? Yes - Liverpool in Champions League
Do you own your own home? Yes
Do you invest directly in the stock market, through funds or both? Have invested directly.
What is your preferred method/system of saving (Deposits, Funds,Shares, Property)? Shares had been!
What financial product/s do you consider to be bad value for money? Endowment mortgages and other high commission products.
Do you trust your bank? Yes, within their own area of competence, not necessarily as investment advisers.
Richard Bruton is Deputy Leader of Fine Gael and Spokesperson on Finance.
Tuesday, November 11, 2008
Employers and 'Execution Only' PRSAs
As the benefits of setting up 'Execution Only' PRSAs are gradually filtering through to employees and employers, it is worthwhile to consider some of the issues that come up on a regular basis.
Where the employer has appointed a PRSA Provider and an Intermediary for a PRSA Scheme by salary deduction, there is no obligation on the employer to add another Provider or Intermediary to facilitate an 'Execution Only' service.
If an employee wants to set up a PRSA with a provider, other than the one appointed by the employer, it will be up to the employer to decide if they want to add a new provider. If the employer does not agree, then the only option open to the employee is to set it up by Direct Debit and claim the reliefs 'manually' from Revenue.
If an employee would prefer to deal through a different intermediary, other than the one appointed to the scheme, it will again be up to the employer if they are willing to add the intermediary to the scheme. If they refuse to add an alternative intermediary then the options available to the employee are; to deal with the existing intermediary or set the PRSA up by Direct Debit.
The requirement of seeking approval for an intermediary to be appointed to a PRSA Scheme is one that is imposed by the Product Provider. Because there is a requirement to allow the employee time to set up a PRSA and allow the intermediary access to potential members, a situation could arise where multiple intermediaries were canvassing employees for their business. This could be very time consuming for all concerned.
It is my opinion that this requirement was not fully thought through, especially in relation to those that do not need advice on their PRSA and prefer to transact their business on a low cost 'Execution Only' basis.
You could have a situation where the existing intermediary is not willing to facilitate a PRSA without some contribution charge. This means that the employee could end up paying this charge, even though they have done all the research and would prefer to just pay the 1% Annual Management Charge only; if they want the contributions to be deducted at source through salary deduction.
What employers should bear in mind in this situation is that there is no cost involved in adding an alternative intermediary to a PRSA Scheme. Some PRSA Providers do not have to set up a separate payment method as all contributions from employees can be collected on the one direct debit mandate. In addition, an 'execution only' service precludes an intermediary from contacting other employees. It may also be beneficial to add an alternative intermediary, from a competitive point of view.
If employees want to transact their PRSA on a low cost 'execution only' basis, the employer should also consider the fact that there will be no need to accommodate meetings between the employee and the intermediary, thus saving valuable employer time. If the employer is contributing to the 'execution only' PRSA, there will be no contribution charge on their payment so, the employee will benefit from having additional money being invested in their PRSA.
The ideal solution, for employer and employee, is to have a facility whereby the appointed intermediary will accommodate both an 'advisory' and 'execution only' service. The DIY consumer benefits from more money being invested in the PRSA and the 'advisory' consumer gets valuable direction from the intermediary for the contribution charge or other payment method.
If this perfect solution does not exist and the employer does not contribute to the PRSA, then it is worth the employees time and effort in claiming the reliefs manually by setting it up on Direct Debit, away from the scheme.
If the employer does contribute, then the employee will have to decide whether the benefits of the employer contribution, plus the facility of having the payments deducted through salary, outweigh the savings to be made on the contribution charge.
Where the employer has appointed a PRSA Provider and an Intermediary for a PRSA Scheme by salary deduction, there is no obligation on the employer to add another Provider or Intermediary to facilitate an 'Execution Only' service.
If an employee wants to set up a PRSA with a provider, other than the one appointed by the employer, it will be up to the employer to decide if they want to add a new provider. If the employer does not agree, then the only option open to the employee is to set it up by Direct Debit and claim the reliefs 'manually' from Revenue.
If an employee would prefer to deal through a different intermediary, other than the one appointed to the scheme, it will again be up to the employer if they are willing to add the intermediary to the scheme. If they refuse to add an alternative intermediary then the options available to the employee are; to deal with the existing intermediary or set the PRSA up by Direct Debit.
The requirement of seeking approval for an intermediary to be appointed to a PRSA Scheme is one that is imposed by the Product Provider. Because there is a requirement to allow the employee time to set up a PRSA and allow the intermediary access to potential members, a situation could arise where multiple intermediaries were canvassing employees for their business. This could be very time consuming for all concerned.
It is my opinion that this requirement was not fully thought through, especially in relation to those that do not need advice on their PRSA and prefer to transact their business on a low cost 'Execution Only' basis.
You could have a situation where the existing intermediary is not willing to facilitate a PRSA without some contribution charge. This means that the employee could end up paying this charge, even though they have done all the research and would prefer to just pay the 1% Annual Management Charge only; if they want the contributions to be deducted at source through salary deduction.
What employers should bear in mind in this situation is that there is no cost involved in adding an alternative intermediary to a PRSA Scheme. Some PRSA Providers do not have to set up a separate payment method as all contributions from employees can be collected on the one direct debit mandate. In addition, an 'execution only' service precludes an intermediary from contacting other employees. It may also be beneficial to add an alternative intermediary, from a competitive point of view.
If employees want to transact their PRSA on a low cost 'execution only' basis, the employer should also consider the fact that there will be no need to accommodate meetings between the employee and the intermediary, thus saving valuable employer time. If the employer is contributing to the 'execution only' PRSA, there will be no contribution charge on their payment so, the employee will benefit from having additional money being invested in their PRSA.
The ideal solution, for employer and employee, is to have a facility whereby the appointed intermediary will accommodate both an 'advisory' and 'execution only' service. The DIY consumer benefits from more money being invested in the PRSA and the 'advisory' consumer gets valuable direction from the intermediary for the contribution charge or other payment method.
If this perfect solution does not exist and the employer does not contribute to the PRSA, then it is worth the employees time and effort in claiming the reliefs manually by setting it up on Direct Debit, away from the scheme.
If the employer does contribute, then the employee will have to decide whether the benefits of the employer contribution, plus the facility of having the payments deducted through salary, outweigh the savings to be made on the contribution charge.
Thursday, November 6, 2008
Elevator Pitch
I have been trying to come up with a suitable 'elevator pitch' for www.prsa.ie.
This website offers low-cost pension products to those that are have a good understanding of their pension needs and are comfortable choosing products and investment funds.
An 'elevator pitch' is a general overview of of a service, that you could 'pitch' to someone else, during the course of a short 'elevator' ride.
This is what I have come up with so far.
I would be grateful for any comments on how you think I could improve this.
Changes to third paragraph.
First Attempt : You can prevent this.
How? By taking a more proactive role in how you save for your retirement. Spend Time and Save Money.
That is what www.prsa.ie is all about.
Second Attempt : www.prsa.ie can help you prevent this nightmare, by taking a more proactive role in your retirement planning; thus reducing charges and enhancing your pension fund.
This website offers low-cost pension products to those that are have a good understanding of their pension needs and are comfortable choosing products and investment funds.
An 'elevator pitch' is a general overview of of a service, that you could 'pitch' to someone else, during the course of a short 'elevator' ride.
This is what I have come up with so far.
Imagine, for a moment, that you just about to retire. You've saved hard for most of your working life so that you can relax from now on. You are dreaming of white sandy beaches and endless days of sunshine.
All of a sudden, your dream is smashed by the realisation that it is your pension advisor that is lying on the beach, in the place where you should be. How do you feel?
You can prevent this nightmare. By taking a more proactive role in your retirement planning, you can reduce charges and enhance your retirement fund. For details, visit www.prsa.ie.
.
I would be grateful for any comments on how you think I could improve this.
Changes to third paragraph.
First Attempt : You can prevent this.
How? By taking a more proactive role in how you save for your retirement. Spend Time and Save Money.
That is what www.prsa.ie is all about.
Second Attempt : www.prsa.ie can help you prevent this nightmare, by taking a more proactive role in your retirement planning; thus reducing charges and enhancing your pension fund.
Sunday, November 2, 2008
Blogger Interview - Niall Brady
What is the best business/investment decision you ever made?
Investing in an SSIA - free money from the government with not too many strings attached.
What kind of car do you drive?I don't own a car - I prefer to cycle - my wife drives a Volvo V40.
What is the worst financial advice that you ever received?
That an endowment mortgage would be the best way to pay for my first home, which I bought in 1992, because of the possibility of an endowment surplus at the end of the mortgage.
Do you own property abroad?
No.
How does the economic slowdown effect you?
It's sure to put downward pressure on pay.
Do you contribute to a pension plan?
I belong to an occupational pension scheme and top up my entitlements by making additional voluntary contributions (AVCs) to a PRSA.
What's your favourite film of all time?
Annie Hall.
Have you ever won money?
I won €1,000 in the Business Journalists' Awards 2007.
Do you own your own home?
Yes.
Do you invest directly in the stock market, through funds or both?I have windfall shares in Standard Life, but most of my stock market exposure is through pensions.
What is your preferred method/system of saving (Deposits, Funds, Shares, Property)?
Deposits and especially pensions because of the tax breaks.
What financial product/s do you consider to be bad value for money?
Insurance cover for day-to-day medical bills. Why bother, when these expenses can be claimed against income tax at your marginal rate?
Do you trust your bank?
Yes, but that doesn't stop me keeping a close eye on my account.
Niall Brady is Money Editor with The Sunday-Times and can be contacted on 01 4792435 or niall.brady(at)sunday-times.ie
Investing in an SSIA - free money from the government with not too many strings attached.
What kind of car do you drive?I don't own a car - I prefer to cycle - my wife drives a Volvo V40.
What is the worst financial advice that you ever received?
That an endowment mortgage would be the best way to pay for my first home, which I bought in 1992, because of the possibility of an endowment surplus at the end of the mortgage.
Do you own property abroad?
No.
How does the economic slowdown effect you?
It's sure to put downward pressure on pay.
Do you contribute to a pension plan?
I belong to an occupational pension scheme and top up my entitlements by making additional voluntary contributions (AVCs) to a PRSA.
What's your favourite film of all time?
Annie Hall.
Have you ever won money?
I won €1,000 in the Business Journalists' Awards 2007.
Do you own your own home?
Yes.
Do you invest directly in the stock market, through funds or both?I have windfall shares in Standard Life, but most of my stock market exposure is through pensions.
What is your preferred method/system of saving (Deposits, Funds, Shares, Property)?
Deposits and especially pensions because of the tax breaks.
What financial product/s do you consider to be bad value for money?
Insurance cover for day-to-day medical bills. Why bother, when these expenses can be claimed against income tax at your marginal rate?
Do you trust your bank?
Yes, but that doesn't stop me keeping a close eye on my account.
Niall Brady is Money Editor with The Sunday-Times and can be contacted on 01 4792435 or niall.brady(at)sunday-times.ie
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