a guide to a group scheme windup
DESCRIPTION
A corporate pension scheme restructure / wind up involves transferring the value of a pension scheme (all or some of the scheme members benefits), from one type of pension arrangement to another.TRANSCRIPT
2 Thomond Asset Management
Group Scheme Windup
Contents01.01
Introduction
Process
Windingupascheme
InformationrequiredbythePensionBoard
Transferoptionsavailable
Theadvantages&disadvantagesofeachoption
Thenextstep
AboutUs
03
05
06
07
08
10
12
14
02.01
03.01
04.01
05.01
06.01
07.01
08.01
09.01
3 Thomond Asset Management
Group Scheme Windup
Introduction
It’s easy to choose a savings plan, a pension, an investment product or an
insurance policy. It’s almost too easy, in fact. Just fill out the forms, sign your
name, hand over the money without another thought and it’s done - you’re away.
It’s so easy. Which is precisely why you need to stop and think hard about
choosing any financial product, especially a pension or investment plan. Even
someone working in the financial industry will take plenty of time to weigh up
their options before choosing the one that’s right for them, and they know what
to look for when they start out.
Savings plans, pensions and investments come in all shapes and sizes, offering
a wide variety of terms, risk levels, charges and potential returns. There are
literally thousands of financial products and probably hundreds of different
suppliers to choose from. Good products and not so good products, good
suppliers and not so good suppliers. You even need to choose the right time:
what might have made a good investment six months ago won’t necessarily be
the right investment now, and vice versa.
If you’re the type of person who enjoys getting all your facts together –
researching the market, calling around to the different financial houses,
understanding often complicated rules and regulations, as well as developing
a keen insight and understanding of the workings of the savings, pensions and
investment markets – then maybe, just maybe, you’re the right person to choose
the investment or pension plan for you.
What if there were people who would do all the hard work for you? Who would sit
down with you and work out what your financial needs are. Who would use their
in-depth knowledge of the market to draw up a list of suitable products. Who
would know which financial company to turn to for the right savings or pension
plan, the right investment fund. Who would guide you through the paperwork,
help you weigh up the potential risks and rewards, and ensure that no matter
what decision you make, at least you’d be making a well-informed decision.
02.01
Gettingtherightfinancialadvicefromtherightplace.
4 Thomond Asset Management
Group Scheme Windup
IntroductionCont.03.01
The good news is that Thomond Asset Management are such people. We are
independent financial advisers, and it’s our job to do all the financial legwork for
you and give you professional, impartial, financial advice. It’s what we’ve trained
and studied for many years to do, which is why we can do it very well indeed.
A good professional advisor will certainly save you time. That’s because as soon
as we start talking to you, we’ll know more or less what plans and product areas
are and are not right for you. We’ll also know straight away where to look for
the right products. Plus, we’ll probably already have the brochures and other
material to hand so we can talk you through some of your options there and
then. We’ll also answer many of the questions that arise as you go through the
process of weighing up your options, such as explaining the charges, the levels of
risk, the return you should expect to get and so on.
What you may not realise, however, is that using an independent financial adviser
can also save you money, often quite a lot of money. That’s because we are duty
bound to give you what’s called ‘best advice’: the best product at the best price
at the best time, to the best of our professional ability. This can save you a lot
of money in terms of charges and fees and even tax. Of course, by helping you
choose a good product we can also be instrumental in maximising the return you
get from your money – advice that’s literally worth its weight in gold.
Welcome to Thomond Asset Management...
Sincerely,
Neal Kelly – Director
5 Thomond Asset Management
Group Scheme Windup
Restructures and wind ups are currently high
on the agenda for many trustees of Group
Occupational Pension Schemes (Defined Benefit or
Defined Contribution). While scheme restructures
are believed to be complex and time consuming,
much of this perception is down to the paperwork
and administration involved. With this is mind,
you can be assured that Thomond Asset Management has a strong, tried and tested,
offering in the corporate pension market which
will help to ensure a seamless process.
In this report we will outline the following:
— The steps involved in winding up a scheme.
— The transfer options available to a scheme.
Process03.01
Acorporatepensionschemerestructure/windupinvolvestransferringthe
valueofapensionscheme(allorsomeoftheschememembersbenefits),from
onetypeofpensionarrangementtoanother.
6 Thomond Asset Management
Group Scheme Windup
Decision to wind up The trust deed and rules of a pension scheme will
usually set down the various circumstances under
which a scheme may be wound up. The trustees of
a scheme will be responsible for any winding up in
accordance with the rules of the scheme and the
Pensions Act.
At a meeting of the trustees of the scheme, a
special resolution should be recorded in the
minutes of the meeting.
Trustees Duties After the special resolution has been passed by
the trustees, the procedure to wind-up the pension
scheme is as follows:
— The trustees must notify the Pensions
Board, all members and the authorised
trade unions of the decision to wind up
the scheme as soon as possible, but in any
event not later than three months after the
decision has been made. They should also
inform the Revenue Commissioners of the
impending wind up of the scheme.
— The trustees should inform the Registered
Administrator of the decision to wind up.
— The trustees must ensure that all
outstanding contributions to the scheme
are paid into the scheme and must then
proceed to apply the assets of the scheme
in discharging its liabilities without undue
delay.
— In the case of Defined Benefit Schemes
the trustees should seek the advice of the
scheme actuary and, in particular, ask him/
her to establish whether the scheme has
sufficient assets to meet its liabilities and
to advise whether the investment profile of
the fund should be altered in advance of the
wind up.
— The trustees should arrange to have the
value of each member’s benefits calculated
for transfer to a PRSA, a Buy-out Bond or a
new Occupational Scheme.
— As soon as practicable after the transfer
values have been calculated, the trustees
should let the scheme members know their
options with regard to transferring their
transfer values to a PRSA, a Buy-out Bond
or a new scheme. With regard to transfers
from Defined Benefit Schemes they must
inform the members with regard to how any
scheme surplus or deficit has been dealt
with, and whether a reduction in benefits
has been made due to the scheme being in
deficit and the amount of same.
Windingupascheme04.01
WhereanemployerdecidestowindupanOccupationalPensionSchemethe
followingstepsmustbecompleted:
Group Scheme Windup
InformationrequiredbythePensionBoard05.01
— Date of winding up
— Estimate of realisable value of scheme assets.
— Estimate of cost of discharging scheme liabilities.
— Statement of all realisations and disbursements since the winding up
— Summary progress report.
— Such other information as the Pensions Board may require.
This report is due to the Board not later than three months after the latest
date that the Board should have received notification of the decision to wind
up.
Uponmakingadecisiontowindupascheme,areportmustbecompiled
andacopyforwardedtothePensionsBoard–thisreportmustcontainthe
followinginformation:
7 Thomond Asset Management
8 Thomond Asset Management
Group Scheme Windup
FollowingthewindingupofanOccupationalPensionSchemethevalueofthe
member’sretirementfundmaybetransferredtoaPRSA,aBuy-outBond,
oranewOccupationalScheme.
— Transfer to a PRSA
— AVC Benefits
The value of any Additional Voluntary
Contributions (AVCs) can be transferred to a
PRSA without any conditions.
— Main Scheme Benefits When a scheme is being wound up, certain
requirements must be satisfied before the
fund value relating to the scheme benefits
can be transferred to a PRSA.
— If the scheme member has more than 15
years service as a member of the scheme†,
then a transfer of the value relating to the
main scheme benefits is not permitted to a
PRSA.
— If the scheme member has 15 years’ service
or less as a member of the scheme and
the scheme is wound up, the transfer to a
PRSA is permitted, without the need for a
Certificate of Benefit Comparison.
— Transfer to a Buy-out Bond (Personal Retirement Bond) Under a Buy-out Bond the contract is owned
by the former scheme member and is no
longer held in trust by the scheme trustees.
The fund value is subject to the rules of
the scheme from which they came, and
the legislation governing Occupational
Pensions. Therefore, the tax-free cash
payable will be based on salary and service
at the date of transfer, and an annuity
must be purchased with the remaining
accumulated capital. If a former employee
was a 5% Director they may alternatively
take 25% of their fund as tax-free and
the remaining accumulated capital may
be invested in an ARF/AMRF or used to
purchase an annuity. Subject to Revenue
limits, the value of any Additional Voluntary
Contributions may be taken as tax-free cash,
used to purchase an annuity or invested in
an ARF/AMRF.
Thetransferoptionsavailable06.01
† Note: Active scheme membership excludes periods of deferred service. Following the transfer to a PRSA the value of the former scheme member’s pension fund is now owned by the individual and is no longer held in trust by the
scheme trustees. The benefits become payable at retirement in accordance with the legislation governing PRSAs. The tax-free cash will be 25% of the fund, and
the individual will be allowed to buy an annuity with the balance or, subject to certain requirements, keep the balance invested in the PRSA, invest the balance in
an Approved Retirement Fund (ARF), take the balance as taxable cash, or use the balance in a combination of these options.
9 Thomond Asset Management
Group Scheme Windup
TransferOptionscont.06.02
— Transfer to a New Occupational Pension Scheme With this option, if the restructure of a
scheme is to a Defined Contribution Scheme
the individual pension fund values are
transferred to the accounts of the individual
scheme members. If the scheme has been
wound up and the individual employee has
moved to a new employment and joined
their new employer’s Occupational Pension
Scheme, the value of their pension fund
may be transferred to the new employers
scheme.
— Transfer Payments Without the Members Consent Where the scheme is wound up:
The trustees must give the members at
least 30 days notice before the proposed
transfer, and they must subsequently inform
the member the PRSA or Buy-out Bond has
been purchased on their behalf.
There must be no outstanding request from
the member for a transfer payment to be
made to another scheme or a PRSA or for
the purchase of a policy or contract of the
member’s choice at the time the transfer is
made.
10 Thomond Asset Management
Group Scheme Windup
Transfer to a PRSA
It is not always straightforward to transfer
the proceeds of an Occupational Pension to a
PRSA as the pensions legislation has restricted
the eligibility for such a transfer. In general, it
is easy to transfer to a PRSA in the following
circumstances:
Where scheme service is less than 15 years ANDWhere the transfer value is less than €10,000ANDWhere the scheme rules allow it.Similarly if a scheme is being fully wound up it is
permissible, (assuming the scheme rules allow
it) to transfer the full value even if greater than
€10,000 to a PRSA if the members scheme service
is less than 15 years.
Advantages of a transfer to a PRSA
— More flexible retirement options (not
confined to purchasing an annuity)
— Control over investment funds and timing of
benefits.
— A regulated product.
— Superior reporting requirements.
— No charge can be made against the
members fund on transfer. In other words,
a 100% allocation must be attained on a
transfer.
— The full value of the PRSA is payable income
tax free on death before retirement.
Disadvantages of a transfer to a PRSA
— If the scheme is a Defined Benefit and
the scheme is not being wound up, then
valuable guarantees could be forfeited by
accepting a transfer value.
— It may be possible to obtain the entire fund
or most of it tax free under occupational
pension scheme rules, whereas with a PRSA
the maximum tax free cash is restricted to
25% of the accumulated fund.
Advantages&Disadvantages07.01
TheAdvantages&Disadvantagesofeachoption–PRSA
Group Scheme Windup
TheAdvantages&Disadvantagesofeachoption–BuyOutBonds
Advantages&DisadvantagesCont.07.02
Advantages of a transfer to a Buy Out Bond
— The pension benefit comes out of trust and
becomes a contract between the member
and the Financial Institution. It removes the
trustees from the equation altogether.
— The member has discretion over what funds
he/she invests the transfer value in.
— The member has discretion over the timing
of benefits subject to Revenue rules.
— In the event of death before retirement the
value is paid free of income tax to the estate.
Disadvantages of a transfer to a Buy Out Bond
— The trustees have no responsibility for the
Buy Out Bond.
— The Buy Out Bond does not give the member
the new retirement options under the 1999
Finance Act. (ARF/AMRF and drawdown)
— It is not possible to transfer the proceeds
to a PRSA in the future under the current
regulations.
11 Thomond Asset Management
12 Thomond Asset Management
Group Scheme Windup
Under the Disclosure of Information Regulations,
you are entitled to an estimate on leaving service
of this transfer payment. This can be provided on
request.
New Employers Occupational Pension Scheme
Should you decide to transfer your benefit to your
new employers pension scheme, you will require
the following information to process the transfer
of payment.
— The formal title of the scheme to which the
transfer value is to be paid.
— Confirmation that the new scheme is an
Exempt Approved Scheme under Part 30,
Chapter 1 of the Taxes and Consolidations
Act 1997.
— The Revenue Approval Number of the
receiving scheme.
— Confirmation from the new trustees that
you are a member of their scheme.
— Confirmation that the new scheme is willing
and able to receive a transfer value
— Confirmation that the new scheme is
registered with the Pensions Board,
together with a note of the Pensions Board
reference number.
— Completion of an approved Transfer
Agreement Form.
TheNextStep08.01
Asdiscussedyouareentitledtoatransferpaymentequaltotheactuarialvalue
ofyourdeferredbenefits.Thistransferpaymentcanbemadetoanother
ApprovedOccupationalPensionSchemeortoanapprovedinsurancecontract
i.e.aBuyOutBondorPRSA.
13 Thomond Asset Management
Group Scheme Windup
TheNextStepCont.08.02
Typically you will need to contact the Human
Resources Department of your new employer to
arrange for this information to be obtained. This
information should be provided by the trustees/
administrator of your new scheme.
Approved PRSA or Buy Out Bond
Should you decide to transfer your benefit to
an approved insurance contract, the trustees of
your present scheme will effect the contract in
your name by paying the transfer value to the
designated insurance company for investment
in the selected fund(s). The value on retirement
is determined by the investment return achieved
on the transfer value during the period to
normal retirement date. It should be noted
that the investment return is subject to market
fluctuations and therefore cannot be guaranteed.
The accumulated value of your Additional
Voluntary Contributions (AVCs) will also be
transferred to the approved contract on your
behalf.
14 Thomond Asset Management
Group Scheme Windup
Thomond Asset Management82 O’Connell Street
Limerick
Tel: 061 462024
Fax: 061 312033
Email: [email protected]
www.thomondam.com
Regulatory Status with the Central Bank of Ireland
FOLK Asset Management Ltd. t/a Thomond Asset Management (“the Firm”) is
regulated by the Central Bank of Ireland as an Authorised Advisor under Section
10 of the Investment Intermediaries Act, 1995 and as an insurance intermediary
registered under the European Communities (Insurance Mediation) Regulations,
2005. The Central Bank holds registers of regulated firms. You may contact
the Central Bank on (01) 224 4000 or alternatively visit their website on www.
financialregulator.ie to verify our credentials. Our Investment Firm Intermediary
Number is C52926.
Disclaimer This document does not constitute an offer and should not be taken as a recommendation from Thomond Asset Management. Advice should always be sought from an appropriately qualified professional.
The case studies are not real people and are for illustration purposes only.
Whilst great care has been taken in its preparation, this newsletter is of a general nature and should not be relied on in relation to specific issue without taking appropriate financial, insurance or other professional advice. The information contained in this newsletter is based on our understanding of current and intended legislation and Revenue practice as at September 2011.
Warning: - The income you get from an investment may go down as well as up. - The value of your investment may go down as well as up. - Benefits may be affected by changes in currency exchange rates. - Past performance is not a reliable guide to future performance
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