Ireland allows two-year annuity deferral
IRELAND - Members of Irish defined contribution (DC) occupational schemes have been given the option of deferring for two years the need to buy an annuity at retirement.
Under existing rules, members of DC schemes generally have to buy an annuity as soon as they retire and after taking their tax-free lump sum, however the pensions industry has been campaigning to allow people to defer the purchase, particularly as the recent market volatility has made a major impact on the value of pension funds.
Brian Lenihan, the minister for finance, acknowledged in a statement the "difficulties facing many members of DC schemes who are retiring at the present time and whose pension funds have been very badly affected by the falls in equity markets and the more general falls in asset values over the recent past".
As a result, he said: "I propose to remove the obligation on those individuals to purchase an annuity immediately on retirement and to give them breathing space, if they so wish, to make a choice on when to purchase the annuity."
The Revenue Commissioners will operate the deferral arrangement, on an administrative basis, and this will be available to members retiring between 4 December 2008 and 31 December 2010.
Lenihan said the final details of the arrangement are still being agreed between the Revenue Commissioners and the pensions industry, but said under the new arrangement members retiring in this period will be eligible to take their lump sum and defer the annuity purchase - "subject to agreement with their scheme trustee".
In an update to members, the Irish Association of Pension Funds (IAPF) said the announcement is a "step in the right direction to recognising the real problems being experienced by members exiting DC plans today and allows some breathing space to those members".
Jerry Moriarty, director of policy at the IAPF, said: "We are very pleased with the initiative, particularly as it was originally suggested by us. The two years is really designed to allow people to consider their options and would be of particular benefit to people who are made redundant before they have had an opportunity to examine their investment strategy or before any life-styling has kicked in."
That said, Lenihan warned although members will now have the option to purchase an annuity immediately or within the two-year deferral period, "there is no guarantee that they will get better value if they postpone the decision to a later date".
He added: "Those individuals who are retiring now or approaching retirement should take this into account. In this regard and as part of the initiative, the Pensions Board will publish appropriate risk guidance in this matter in the near future."
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