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Pensions
(?)

Putting pension planning front and centre

Simon Shirley examines the recent report from the Interdepartmental Pensions Reform and Taxations Group and what it means for pension reform down the line. In 2018, the Irish government published A Roadmap for Pensions Reform 2018–2023, in respect of a proposed five-year plan for comprehensive reform of the state and private (or ‘supplementary’) pension systems. A key aim of the Roadmap is to promote long-term pension saving to address income adequacy in retirement. The Interdepartmental Pensions Reform and Taxations Group (IDPRTG) – chaired by the Department of Finance and includes representatives from the Department of Public Expenditure and Reform, the Department of Social Protection, Revenue, and the Pensions Authority – was established to carry out several tasks set out in the Roadmap, namely: proposals aimed at simplifying and harmonising the supplementary pension landscape; an assessment of the cost of State support for pension savings; and a review of the Approved Retirement Fund (ARF) structure. The group engaged in a public consultation process and received submissions from various stakeholders, including pension/life insurance companies, trustees, lawyers, advisors/brokers, investment managers, and private individuals. In recent weeks, it published a report on some of its work-to-date. This report has been broadly welcomed by the private pensions industry and contains positive and practical steps. The report contains several proposals to reform and simplify the existing supplementary pension system, i.e. the system that is relevant to most of us working in the private sector who have pension plans. This system consists of two pillars, broadly summarised as follows: Employer-arranged pension plans, known as occupational pension schemes. These are provided by employers for employees and are arranged on a “group” basis (i.e. for more than one employee and are the most common arrangements for employees in the private sector), or on an “individual” basis (i.e. for one employee only and are typically used by company owners and key executives). Individual plans, which are typically used by self-employed sole traders/partners, employees in non-pensionable employment, and employees who are changing/leaving employment. While many of the proposals make sense at a technical level, at the end of the day, many of us will always require advice on saving for our retirement, irrespective of the number of products, rules, options, etc., that are available.  As professional pension advisors/brokers, we are at the coalface of the system. For decades we have been advising employers, and individuals from all walks of life, from late teens to 90s, whether starting out or in retirement, whether running their own business to working for a multinational, on planning for retirement and planning in retirement. No matter how many technical groups are assembled, reports published, public consultations undertaken, etc., the fact remains that adequately planning for retirement will remain challenging for many of us, as we are programmed to engage more with short- to medium-term matters, rather than long-term issues and requirements. While the current system does have anomalies and inconsistencies, some of these wrinkles can often lead to improved outcomes for individuals, and can actually improve the attractiveness of saving for retirement, in conjunction with appropriate advice. I welcome that the report acknowledges the need for advice and states: “The need for independent financial advice in the lead up to, at the point of, and during retirement is widely accepted. Improving the availability of appropriate advice for pension savers received significant support in the consultation responses.” However, the danger in this process could be that the need for advice ends up being a footnote rather than being front and centre, given the various perspectives, experiences, and interests of the large stakeholders (i.e. the government, relevant state bodes, pension/life insurance companies, etc.).  Pension and retirement planning is a very personal experience, and a simplified one-size-fits-all solution may not always be in the best of interests of citizens, who tend to have very varied personal and financial backgrounds, objectives and expectations. To assist the large stakeholders in this process, the voice of the experienced professional advisor (through representative groups such as Chartered Accountants Ireland and Brokers Ireland) should be a key influencer in any changes to be made.  So far, I have been impressed overall by the preparatory work done by the government and the state bodies in recent years – however, effective ongoing communication and practical implementation of the reforms/changes to be made will be the ultimate litmus test. Simon Shirley is the Founder of Simon Shirley Advisors. He is the author of the new book, A Practical Guide to Pensions and Life Insurance, from Chartered Accountants Ireland.

Dec 11, 2020
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Public Policy
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Public Policy Bulletin, 6 November 2020

In this week’s Public Policy news, take a look at the economic forecast for Ireland in the latest Autumn Economic Forecast by the European Commission. You can also view the latest Spending Review papers published by the Department of Public Expenditure and Reform, and read Minister Donohoe’s comments welcoming the work of the Task Force on Climate-related Financial Disclosures.“Ireland one of the least affected member states”, says latest EU Economic ForecastReleased earlier this week, the European Commission’s  Autumn 2020 Economic Forecast has forewarned that an interrupted and incomplete recovery of the EU economy has led to further uncertainty in economic projections. With the economy showing a strong rebound in the third quarter following a lifting of COVID-19 restrictions, the resurgence of the pandemic has resulted in further disruption. In comparison to the Summer forecast, growth projections for both the euro area and the EU are slightly higher for 2020 and lower for 2021. It is forecasted that the euro area economy will contract by -7.8 percent in 2020 before growing by +4.2 per cent in 2021.What was the major impact on Ireland?The forecast for Ireland has found that Ireland's real GDP fell by 2.1 per cent in the first quarter of 2020 and by 6.1 per cent in the second. This was low in comparison to other EU member states, as exports by multinational corporations, particularly the pharmaceutical and business services sectors, performed well. However, a decline in private consumption and investment triggered a fall in imports. The impact on investment in Ireland is the worst in the EU, as it is set to shrink by 41.3 per cent in 2020 before strengthening next year.What is the impact on Ireland’s labour market?The wide take-up of Ireland’s income support schemes is set to cushion the labour market shock, while strong exports by MNCs cushioned the fall in real GDP. Higher unemployment may accompany the economic recovery in 2021 as the Pandemic Unemployment Payment scheme ends in April. In 2022, a second year of recovery is set to support the labour market’s improvement.Is Brexit contributing to the predicted economic downturn?As a departure from previous practice, the Autumn forecast is also based on a "technical assumption" that there will be a no-deal Brexit at the end of the transition period on 31 December 2020, and that from 1 January 2020 both sides will be trading on default WTO terms. In Ireland, this default trading relationship is expected to reduce trade and GDP growth in 2021. Minister McGrath publishes second quota of Spending Review papers for 2020The Department of Public Expenditure and Reform in Ireland has published the second tranche of Spending Review papers as part of the 2020 Spending Review process. The Spending Review process aims to facilitate the development of policy analysis and evaluation in support of the service-wide agenda of evidence-informed policy making. The 17 papers published today are available on the Spending Review website. In comparison to the first tranche of papers, this set is much more detailed and takes into account the dual impact of COVID-19 and Brexit across many sectors in Ireland. The papers cover a number of areas, while focussing on measuring such as the review of State-Supported loan schemes to mitigate the impact of COVID-19 and Brexit, assessment of the impact of Brexit and COVID-19 on the Gaeltacht’s local economy, the effectiveness of energy efficiency measures for the private household sector in Ireland, assessment of Ireland’s performance under the EU Work-life Balance Directive, and building delivery mechanisms for social housing.Some other areas covered are:EducationEnterpriseCivil and Public Sector Staffing, Pay and PensionsForeign Affairs and TradeChildrenClimate ChangeAgricultureDefenceTransportJustice & Courts ServiceState PropertyHealthHousingGovernment Expenditure Minister Donohoe supports work of Task Force on Climate-related Financial Disclosures Minister for Finance, Paschal Donohoe T.D., has voiced Government support for the Task Force on Climate-related Financial Disclosures (TCFD), and its work on providing clarity to companies reporting on climate risks and increasing the transparency required to meet the Paris Agreement goals. Speaking at an event organised as part of Climate Finance Week Ireland, Minster Donohoe stated that he is actively encouraging more Irish firms look to engage with and adopt recommendations made by the task force to expedite their own climate transition plans.The implementation of the recommendations represents best practice for companies and opens up access to more sustainable pools of growth capital while addressing the needs of investors for greater transparency.Chair of the TCFD, Michael Bloomberg, has also welcomed Ireland’s adoptions of the recommendations especially as countries build greener, more resilient economies in the wake of the pandemic. He also stressed on the importance of increasing transparency on climate-related risks and opportunities, to promote more informed financial decision-making by investors, lenders and others. Read all our updates on our Public Policy web centre. 

Nov 06, 2020
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Pensions
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State pension age to remain at 66 for now

The state pension age will not increase from 66 years to 67 years in January 2021.  This is in line with the Programme for Government. During his speech today, Minister Michael McGrath said that a Pensions Commission would be established to consider the issue; however, no details or commitment on a timeframe were given.  

Oct 13, 2020
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Public Policy
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Public Policy Bulletin, 9 October 2020

In this week’s Public Policy news, read about Ireland’s new Climate Action Bill; how figures published in September reveal the continuing Exchequer deficit; how unemployment is likely to remain in double-figures into 2021; and how economic output for Northern Ireland fell by 14 percent over the quarter to June 2020. Irish Government Publishes Climate Action BillThis week the Government published the draft text of its landmark Climate Action Bill (the Climate Action and Low Carbon Development (Amendment) Bill 2020) with the main target being to reach carbon neutrality by 2050. It appears that the new law will affect every element of society, with legally binding five-yearly carbon dioxide limits on the State, and all major sectors being subject to a cap on carbon pollution. The main features of the Bill are as follows: enshrining in law the target that the economy will be ‘climate-neutral’ by 2050. A climate-neutral economy is described in the Bill as a sustainable economy, where greenhouse gas emissions are balanced or exceeded by the removal of greenhouse gases. This will be known as the ‘national 2050 climate objective’;the Government of the day will put in place five-yearly ‘carbon budgets’, covering 2021–2025, 2026–2030, and 2031–2035. Carbon budgets will determine the total amount of greenhouse gas emissions by the State permitted during the budget period. The carbon budgets will be calculated on an economy-wide basis, and there will be legally binding emission limits on major sectors, including the public service and local authorities; the  Climate Change Advisory Council will have a strengthened role, and it will advise the Government on national and sectoral limits to be adopted; greater accountability will be introduced for relevant ministers, who will be obliged to account annually before an Oireachtas committee for their sectors’ performance towards sectoral targets and actions;a target of an average 7 percent per annum reduction in overall emissions by 2030, as committed to in the Programme for Government;the replacing of the National Climate Change Mitigation Plan with a new annually updated Climate Action Plan, starting in 2021, and the development of a National Long-Term Climate Action Strategy.the requirement on all local authorities to produce their own Climate Action Plans detailing their commitments to act to mitigate climate change and to adapt to its effects. These Local Authority Climate Action Plans must be completed within 18 months of the enactment of the Bill, and not less than once in every five-year period going forward. Speaking at the publication of the Bill, Minister for the Environment, Climate and Communications, Eamon Ryan described the Bill as a “radical departure for Ireland and one that puts our country on a new course”, and stated that that it will create opportunities for Ireland to be a leader in renewable power, repair and retrofitting, sustainable agriculture and the circular economy. Taoiseach Micheál Martin described the legislation as “truly ground-breaking” and would have “a transformative impact on our society and economy into the future.”Tánaiste Leo Varadkar TD added that the decarbonisation of the economy will present “significant opportunities for Irish business”. He went on to say “Whether that be in the huge expansion of entire industries, such as retrofitting or offshore wind, or in the creation of innovative solutions to the adaptations that will need to be made, the early movers with the most ambition will see the greatest opportunities. Thousands of jobs will be created and we will need to ensure we have a strong pipeline of skills to respond.”The announcement comes as the European Parliament adopts its position on the EU climate law, making Europe’s 2050 goal of reducing greenhouse gases to net-zero legally binding, and voting for an ambitious target to reduce emissions by 60 percent compared to their 1990 levels, by as early as 2030.It also comes after several weeks of increased activity among investor groups, framework- and standard-setting bodies, and the Big 4 accounting firms and World Economic Forum, all of which are moving towards agreed consistency on the reporting of climate-related and other non-financial information. Economic impact of COVID-19 in Exchequer deficitExchequer figures published at the end of September shows that the trend of recent months is continuing, with a decline in VAT offset (to some extent) by strong corporation tax receipts and (to a lesser extent) by resilience in income tax receipts. Factoring in increased expenditure, the Exchequer figures show a deficit of €9.4 billion to end September 2020. A surplus of €38 million was recorded in the same period last year. Figures showed a decrease in cumulative tax receipts from 2019 - down only 3 percent or €1.2 billion year-on-year. In light of the economic shock of Covid-19, it appears extraordinary that taxes are only 3 percent behind 2019 figures.  VAT receipts in Q3  were down by nearly 19 percent or €900 million, reflecting reduced personal consumer spending, albeit propped up by government supports. Although income taxes were down 7.1 percent in Q3, overall year-to-date receipts continue to exceed expectations, as did corporation tax receipts which were 9 percent ahead of the same time last year.   Government spending to support the economy was up 25 percent compared to 2019, with total net voted expenditure to end-September over €48 billion. The figures, according to Minister for Finance, Paschal Donohoe TD, show that the Government has directed an unprecedented amount of resources at fighting the COVID-19 pandemic, through investment in the health service, protecting incomes and supporting business throughout this crisis. Commenting on the figures, the Minister said that Budget 2021 will see continuing use of appropriate policies to direct resources at those who need it most. ‘Today’s Exchequer figures provide a timely snapshot of the public finances as we prepare for Budget 2021. They show that although receipts are better than previously expected, much of the over-performance relates to corporation taxes — a revenue stream we cannot rely on over the medium-term’.  Central Bank warns of that unemployment likely to remain in double-figures into 2021  In its latest quarterly bulletin, the Central Bank has warned that the outlook remains uncertain for the Irish economy, citing both the COVID-19 pandemic and the future trading arrangements between the EU and the UK as the cause. Its latest bulletin assumes a no-deal Brexit, meaning that the EU and UK moving to WTO trading terms next year. Although Ireland’s economy fared better than most European countries – it recorded the smallest pandemic-related fall in GDP across Europe – it did experience one of the highest falls in consumer spending. Ireland’s exporting sector, particularly in pharma products remained strong enough to mitigate the overall fall in GDP, but the domestic sector fared badly due to the job losses caused by COVID-19 restrictions. The bank warned that unemployment would likely remain in double digits into next year. However, it did revise down its forecasted overall decline in GDP. Earlier this year it forecast a decline of 9% for 2020. It now forecasts a decline of only 0.4% for the year. It also projected the following:   2021 2022 GPD growth  3.5%  4.7% Unemployment increase 8% 7.5% Fall in economic output in Northern IrelandFigures published this week by the Northern Ireland Statistics & Research Agency (NISRA) have revealed that economic output for Northern Ireland fell by almost 14 percent over the quarter to June 2020. The services, production and construction sectors were particularly affected. Citing statistics measured using the Northern Ireland Composite Economic Index (NICEI), NISRA revealed that economic output fell by almost 18 percent when compared with the same quarter in 2019. While this was the biggest fall in the history of the NICEI index, NISRA did point out that the decline in Northern Ireland economic activity was slower than in the rest of the UK over the second quarter and the year (UK GDP fell about 19 percent over the same quarter and 21 percent over the year.)  However, it pointed out that on a longer timeframe, Northern Ireland economic output decreased by 5.1 percent over the last two years compared to growth of 5.4 percent reported for the UK.  Read all our updates on our Public Policy web centre. 

Oct 09, 2020
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Public Policy
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Commission has taken the wrong decision in appealing the Apple ruling – Chartered Accountants Ireland

The EU Commission should not be appealing the decision of the General Court of the European Union in the Apple case, according to Chartered Accountants Ireland. The all-island body, representing 28,500 members, made the comments as the Irish government noted the decision of the European Commission on Friday to lodge such an appeal. Commenting, Brian Keegan, Director of Public Affairs with Chartered Accountants Ireland said “The appeal will serve little purpose. The Commission’s entitlement to look at tax issues when it comes to challenging state aid rules was confirmed by the July court ruling. This entitlement, along with the power of national officials to apply domestic law as best they see fit, may well be the only enduring lessons from the Apple case.  “The Commission should now be looking forward and outward. The power of the EU single market in a disrupted and unstable international trading environment is critical.  Commission resources should now be devoted to securing Europe's place as an international trading bloc and not fighting internecine tax wars with member states.  “The tax point at issue in the Apple case is no longer an issue, resolved neither by Irish legislation nor by European Commission activity but by changes in US tax law. The US Tax Cuts and Jobs Act of 2017 cancelled out the strategy of deferring tax on profits of US multinationals earned outside the US by keeping those profits outside the US. Decisions on where tax is paid are the focal point for the international corporation tax reform agenda led by the OECD, and Commission challenges in the Apple case will not further that agenda. “The European Treaties stipulate that a further appeal can only be on a point of law, which may be difficult given that the July ruling was largely determined on the facts.”  ENDS

Sep 25, 2020
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Public Policy
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Public Policy Bulletin, 14 September 2020

In this week’s Public Policy news, read how Ireland has officially entered recession, how the new National Waste Action Plan for a Circular economy intends to move the focus from disposal to production, about two support schemes now available for Northern Ireland businesses, and how the EU plans to make a more resilient green and digital future Europe.Ireland enters recession following biggest quarterly drop ever recordedThe latest quarterly national accounts released by the Central Statistics Office last week showed that Ireland’s economy has officially entered recession. Ireland’s GDP has contracted by 6.1 percent during the second quarter of 2020. A recession is defined as the GDP contracting two quarters in a row. Consumer spending decreased by 19.6 percent, while industry and government spending increased by 7.5 percent.  Overall economic activity was partly offset by an increase of €37.8 billion in net exports of goods and services in Q2. The following sectors contracted significantly: Construction: 38.3 percentDistribution, transport, hotels and restaurants: 30.3 percentAgriculture, forestry and fishing: 60.6 percentArts and entertainment: 65.5 percentInformation and Communication: 1.5 percentMinister Finance Paschal Donohoe reportedly stated that there has been a strong pick-up in the third quarter of this year, according to indicators available to Government, and that Ireland compares favourably against the UK, eurozone and the US, where GDP declined by considerably more in the same period. Ireland publishes its Waste Action Plan for a Circular EconomyThe Department of Communications, Climate Action and the Environment this month published its Waste Action Plan for a Circular Economy. The policy is part of a new National Waste Action Plan and aligns with the goals of the European Green Deal, which seeks to embed climate action in all strands of public policy. The policy contains over 200 measures across various waste areas, including the Circular Economy, Plastics and Packaging and Green Public Procurement, and its goal is to move the focus away from waste disposal and look at resources more broadly to maximise their value rather than disposing of them. The plan is also summarised in infographics, which describe key actions and targets for both individuals and businesses. Invest NI makes two new COVID-19 schemes available  Minister for the Economy, Diane Dodds last week announced two new support schemes available to Northern Ireland businesses:£1million Digital Selling Capability Grant to help retailers and wholesalers better access consumer demand and grow online sales; and£5million Equity Investment Fund to help early stage and seed stage SMEs access finance. Both schemes opened for applications on 9 September. They are operated by Invest Northern Ireland, which is developing several new initiatives to help companies in the new business environment post-COVID-19.Kevin Holland, CEO of Invest NI, described SMEs as “the lifeblood of the Northern Ireland economy” and stated that the two new recovery schemes are “part of a range of solutions we are putting in place to help businesses progress recovery plans, strengthen supply chains, develop new products and access finance.”More information on Business Supports available for Northern Ireland can be found on the Chartered Accountants Ireland COVID-19 Hub, updated regularly. EU integrates strategic foresight into policymakingThe EU has published its strategy to integrate foresight into policymaking. The aim of the strategy is to help understand future challenges and opportunities, to identify major trends, explore alternative futures and design forward-looking policies to make Europe more resilient, green, digital and fair in the future. I’s first annual report Strategic Foresight - Charting the course towards a more resilient Europe focuses on social and economic, geopolitical, green and digital resilience. Read all our updates on our Public Policy web centre.

Sep 14, 2020
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