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Pension savers will no longer be able to access their retirement benefits after age 50 under new government proposals, which also recommend raising the normal retirement age for private pensions from 70 to 75 years.
Savers will also not be able to invest their pension income in an approved retirement fund (ARF) if the proposals are implemented.
This is according to a new report from the Interdepartmental Group for Pension Reform and Taxation, which includes representatives from the Department of Public Expenditure and Reform, the Department of Social Protection and Income. The report recommends a simpler supplementary pension landscape.
Today, certain pension savers, such as those who have left previous jobs or those with purchase bonds (BOB), can access some of their pension savings after age 50. With personal retirement savings accounts (PRSA) or retirement annuity contracts (RAC), they can only access pension benefits from the age of 60.
Under the new proposals, the age at which people can access their funds will be standardized at 55. This, according to the report, “would be consistent with greater longevity. . . and aligned with the political direction of working longer as indicated by increasing age ”.
Similarly, pension funds must generally be withdrawn before age 70, but the new approach would mean a standardized age of 75. This, the report states, “would offer additional flexibility to occupational plan members to continue contributing to their pension fund for a longer period,” and is also in line with longevity trends.
The proposals also recommend abolishing a number of existing pension structures, including RACs and BOBs, and replacing them with a PRSA, which would, in effect, standardize the features of those products.
Shane Farrell, Irish Life’s chief product officer, said the changes are “imminently sensible” as many of the differences that exist “don’t exist for no good reason.”
Jim Connolly, head of retirement planning at AIB Private Bank, agreed.
“In general, they are suggesting things that I would have done years ago,” he said. “There is too much arbitration and anomalies and loopholes in our legislation.”
However, he is concerned about the proposed abolition of the ARF (approved retirement funds), noting that it is a “product that has worked quite well.”
ARFs have become the reduction product of choice for most defined contribution pension savers, given the low value that annuities offer. With an ARF, a pension saver stays invested in retirement. Income ARF data suggests there were about 70,000 such funds at the end of 2019, with assets of about € 12.5 billion.
However, the report notes a lack of transparency in pricing, “poor” financial advice and inadequate regulation of ARFs, and suggests replacing them with a PRSA for life and a reduction within the scheme.
“I don’t think it’s appropriate in retirement for someone to become a one-size-fits-all investment,” Connolly said, adding that he is concerned about the reduced investment option with a PRSA.
The report also recommends abolishing the Approved Minimum Retirement Funds, given that recent increases in state pensions make the requirement of having a guaranteed income of 12,700 euros superfluous.
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