Business owners have been frozen out of the pensions market after the regulator threatened to prosecute people using existing pension products.
The five insurers in the State selling single member pension schemes – Irish Life, Aviva, Zurich, Standard Life and New Ireland – all suspended opening any new plans on Friday pending clarification from Government.
That is not likely until the budget in September and any measures announced there will not take effect until the Finance Act is passed into law close to the end of the year.
The action means thousands of business owners will not be able to make any significant effort to save for their retirements – at least for the next six months.
Most company owners start saving for retirement much later in life as they focus on investing in their businesses first.
For that reason, they have, for decades, use a very flexible product called a one-member scheme, which allows for a broader range of investment and, more particularly, gives tax relief on much higher amounts than would be possible under a standard occupational pension arrangement. It also allows for easily adjusted contributions to take account of business highs and lows.
Under new EU rules, the compliance burden on such schemes will be untenable and the industry was aware they would be phased out. However, a new Private Retirement Savings Account (PRSA) featuring the same flexibility has not yet been put in place, despite expectations that it would have happened well in advance of a July 1st deadline for the imposition of new rules.
Insurance firms say they were shocked that in those circumstances the regulator, the Pensions Authority, adopted an ultra-hardline approach, making it clear it intended to prosecute trustees of such schemes if they continued to be sold. They note that there is already a derogation to 2026 for existing holders of such schemes to comply with the new rules.
“It’s not just that they said the schemes were not compliant,” said one industry executive. “They said `we do not think it is possible to make them compliant’.”
Given the absence of an effective alternative savings vehicle and the fact that older schemes have a number of years yet in which to make arrangements, insurers had understood the regulator would not be taking a hard line on the issue – at least until an alternative product was approved. “But they have said to us directly that they just do not want to see these schemes being set up,” a second industry source said.
“As an industry, we ultimately decided the threat was too great,” he said.
Industry spokespeople said anyone who had already set up such a scheme since late April 2021, who are nominally also affected by the new rules, could continue to use them for now. About 1,000 single-member schemes have been established every month.
