Upcoming changes proposed by the Department of Employment Affairs and Social Protection due to the need for Ireland to transpose the European IORPS II Directive into law will inevitably have discouraging and restrictive consequences for members of Small Self-Administered Schemes to fund for their own retirement.
The IORPS II Directive is an update on the original European IORPS Directive which was intended to be transposed into Irish Law on 13th January 2019. This did not occur on this date and it is now expected to do so before the end of March 2019.
For those with Small Self-Administered Pension Schemes (SSAPs) which are in the main company directors, it is worth nothing that there are two primary areas of concern;
1 The insistence that oneperson pension arrangements are forced to invest a minimum of 50% of their scheme assets in regulated markets such as investment funds. This directs SSAS holders to invest in areas that may not be suitable or of interest to the savvy investor. In will at the very least, restrict clients looking to invest in property and instruments such as loan notes or other unregulated investments such as property.
2 If transposed in the way proposed, IROPS II will prohibit borrowing for oneperson pension arrangements. This will prevent SSAS scheme holders purchasing property as an asset in their pension scheme where they need to borrow to secure the investment.
Originally, when IROPS I was introduced, the pensions industry lobbied and successfully secured a derogation allowing for oneperson arrangements to be treated differently to large corporate schemes. This derogation allows for the investment in unregulated assets and for investors to borrow. However, if the Department of Employment Affairs and Social Protection are successful in having this derogation removed from when IROPS II is transposed into Irish law then it will affect the ability of oneperson pension arrangements to control their investment strategy in areas potentially more profitable and transparent than regulated instruments.
It is understood that existing investments made by SSAS arrangements will not be affected but this remains to be clarified. Approved Retirement Funds (ARF’s), Personal Retirement Bonds (PRB’s) and PRSA’s are not affected by the proposed change as the Directive only applies to occupational pension arrangements a category of pension arrangement governing Small SelfAdministered Schemes.
At this point it remains to be seen whether pension industry lobbying will be successful in having the derogation retained. It is understood that the Department of Employment Affairs and Family Protection are resisting the application of the derogation as perhaps it fits with their longer term national pension strategy currently being worked on by this very department.
If a SelfAdministered Scheme investor is currently in the process of closing out on an unregulated investment such as a property, loan note or other then it is important to consult with your Advisor, SSAS provider or legal representative carrying out the due diligence on your investment and push to have it closed as soon as possible as it may not be permitted to proceed from when IORPS II is transposed into law.