ARF Reform Should Maintain Benefits For Pension Savers
The government’s Interdepartmental Pensions Reform & Taxation Group has recommended that the Approved Retirement Fund should be replaced by a whole-of-life PRSA product. Paula Finlay, Director of Pensions, Davy Private Clients, concurs that reform is well overdue.
“I have met many retirees who unwittingly ended up managing their own ARF funds with little or no financial or investment knowledge,” Finlay explains. “ARF managers don’t have to be pre-approved by Revenue or any other regulatory body, so there are no pension-reporting obligations on ARFs. ARFs also aren’t automatically covered by the Investor Compensation Scheme, so they really are an outlier when compared with other pension products on the Irish market. Davy is a MiFID regulated firm, and therefore our ARF clients receive a valuation statement annually, with a breakdown of costs and charges.”
However, Finlay notes the multiple benefits of the ARF structure, including flexibility of investment choice, and the ability to withdraw an ad-hoc income, as required. “The ARF is also an excellent succession-planning vehicle, allowing the transfer of pension assets,” she adds. “A whole-of-life PRSA product, or an in-scheme drawdown pension product, could replace the ARF, assuming it retains the key benefits of the ARF. As with any regulatory change, it is vital that the key benefits to individuals of the ARF structure aren’t lost when reform is brought through.”
A worry for owners of small selfadministered pension schemes is the impact of the EU’s IORP II regulation, and the increased burden on the trustees. Finlay is confident that the firm will be able to work with clients to implement any changes once complete guidance has been issued.
“The purpose of IORP II is to make sure that there are experienced trustees who have the expertise to manage pension assets over the long term. We welcome any change in pensions’ regulation which seeks to improve outcomes for members.”
Another consequence of IORP II is that consideration of ESG factors in the investment decision-making process is increasing, and will continue to do so. “We are seeing growing client demand to invest in a manner consistent with their values, similar to the general trends in the institutional markets. Davy has been managing ESG portfolios for the past eight years and is currently further developing our offering in this area, in line with the increasing demand from clients,” says Finlay.