Does my boss have the right to keep me in the dark about our work pension scheme?
Published 10/07/2016 | 02:30
I have been a manager in an Irish SME for a number of years and have recently found out that the company has a defined benefit pension scheme into which it has been paying contributions since 2014.
I had no idea such a scheme was in place. I have asked around a number of other managers but none were aware of this either. As I make contributions to a personal pension, I would have liked to have taken advantage of the company scheme.
Does a company have a requirement to offer or advertise a scheme like this to staff - or can it choose which staff it can offer the benefit to?
David, Drogheda, Co Louth
There is no legal requirement on an employer to set up an occupational pension scheme, but if it doesn't, it must provide you with access to some form of pension arrangement. At a minimum, access means that it deducts pension contributions from your pay and remits them to a Personal Retirement Savings Account (PRSA - a personal pension arrangement that an employer is not required to contribute to) on your behalf.
You mentioned that your employer had set up a defined benefit (DB) pension in 2014. I would be surprised if your employer set up a DB pension scheme, but it may have set up a defined contribution (DC) scheme. This could be a policy for one individual - or a scheme for a group of employees. An employer can establish a pension policy for an individual without the requirement to make a similar arrangement available for all employees.
However, under the Pensions Act, every occupational pension scheme is obliged to comply with the principle of equal pension treatment. This means that schemes cannot discriminate between people on any of the nine specified discriminatory grounds - including gender, marital status, religion, and so on. It is possible to establish an occupational scheme that allows entry at the discretion of the employer - as long as it does not break the above discrimination grounds. However, that would be unusual.
The Pensions Act also has rules around disclosure, which require trustees to make available certain documents and information about the scheme and its operation to members and other specified persons - including prospective members. The information that must be provided includes the eligibility criteria to join the scheme. The trustees must also make sure the information is given within the timescales specified in the legislation.
As a first step, seek clarification from your employer as to whether a group pension scheme has been established for employees. If it is a group arrangement, then as a possible prospective member, you should be entitled to ask for information regarding eligibility to the scheme.
My company decided to close its defined benefit pension scheme last year and start a defined contribution scheme (DC) scheme. At that stage, I had one year to go to retirement. My company gave me a transfer value of €356,000 and put us in touch with a financial adviser tied to New Ireland.
After filling out a questionnaire, I was advised to put the transfer value into the Elements Fund and ongoing contributions into the BNYM Global Real Return Fund. Unfortunately, the Elements fund didn't perform well, with the result that I had lost almost €20,000 by last January. I became very nervous at that stage and decided to put all the funds into cash to try and stop further losses. As I will be retiring this summer, I will have a number of options. I'm very wary of an ARF (Approved Retirement Fund) yet I don't think an annuity - along with the Old Age Pension - will provide enough of a pension for myself and my wife. What should I do?
Declan, Fairview, Dublin 3
As you say, you have a number of options. You can choose to buy an annuity with an insurance company - or you can opt for the ARF route. Each option has an appropriate investment strategy for the period up to retirement.
Under the annuity option, you have a "spend" date - and this is most likely to be your 65th birthday. As such, you cannot afford to have your funds exposed to a sudden drop in value as there is no time to wait for markets to recover.
On the other hand, the ARF route means that you are not spending your fund, but will need to keep it invested for you and your wife's lifetime.
The questionnaire you filled out with New Ireland was most likely to determine your attitude to risk and how you intended to access your funds in retirement - that is, through annuity or ARF. Of the range of funds available from New Ireland, the funds recommended to you are low volatility funds suitable for the cautious investor intending to opt for an ARF at retirement and I assume that this was communicated to you. Unfortunately, investment markets have been very volatile over the past 12 months and even low-risk funds had a negative return. It is important to understand the nature of the funds you invest in and to be aware of what can happen in both positive and negative market conditions. Low volatility funds should not fall dramatically in value in the bad times but neither will they perform as well as a higher-risk fund when equity markets are good.
Once you understand and accept the risk profile of the funds you have invested in, it is important to stick with an investment strategy - especially in periods of volatility.
Under either the annuity or ARF option, a portion of the fund may be taken as a tax-free lump sum and as a first step. I would recommend that you do this because it will reduce your taxable income.
If you decide to buy an annuity, then I would keep the funds invested in cash for the next few months until you retire. An annuity will provide you with a guaranteed pension for the rest of your life, and on your death a pension can be paid to your wife for her lifetime.
I agree that an annuity would represent poor value at the moment.
Under the ARF option, you retain ownership of the funds in retirement and remain responsible for the investment of these funds. On death, the funds transfer to your spouse - without any inheritance tax liability. Furthermore, any remaining funds can be inherited by your children or other dependants.
Under ARF rules, you must draw down a minimum of 4pc of the value of the funds a year to the age of 70 - and 5pc thereafter. You may take more than the minimum if this is required. At a 5pc drawdown, you will exhaust your funds in 20 years, so some investment in growth-seeking assets is necessary. The funds you were originally in are designed to target returns of between 2.5pc and 5pc per annum and would be suitable for investment in an ARF.
I understand why you transferred to cash. However, under the ARF your funds will remain invested for the rest of you and your wife's lives - hopefully, at least another 25 years. In investment terms, this is a very long period and some volatility is to be expected but as long as you remain invested, negative returns should be followed by recovery and positive returns.
Based on what you have said, I feel that the ARF option is likely to provide you with the greatest degree of flexibility regarding income and continued ownership of your pension assets.
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Director at Allied Pension Trustees
Sunday Indo Business