The Pensions Authority shut down one person pension schemes last July. The replacement is the Master Trust structure. Over the last few weeks, the insurance companies have been launching their version of the master trust structure that can be used in one person arrangements.
What is a Master Trust?
Previously, when setting up a one person arrangement, the company usually acted as the trustee. For each one person scheme, there was a new trust, which was put in place through a letter of exchange.
Under the Master Trust, there is one trust for all of the providers company pensions and the trust contains multiple individual employer plans. Each of these plans is completely separate from others.
The trustees are a number of independent trustees or a trustee company who are appointed by the provider. They are responsible that all the schemes comply with the relevant legislation.
What differences does this make?
There are quite a few changes to how one person Master Trust pensions will work.
No early exit penalties. A feature of the old executive pension plan was most of them had early exit penalties if you transferred your benefits to another provider in the first 5 years. That is now gone.
Transfer values get 100% allocation. So if you transfer in €100,000, you can be sure that the full amount is invested into your pension fund.
This does not apply to new contributions where it is still possible to have less than you paid in actually invested in your plan. This will happen in cases where the advisor is getting paid a commission.
Less fund choice. As the trustees have a responsibility to ensure that the members are invested in prudent funds, some of the more exotic funds are not available. For the vast majority of investors, this won’t matter and the most popular funds are still available.
More expensive. There is a cost to have a professional trustee who will carry out all the trustee duties for you (these were mainly ignored when companies were trustees) as well as the increased duties that are required under IORPS II. The low cost pensions that were available are now gone (one provider does have access to lower cost plan for large contributions) and you can expect to pay between 0.25% – 0.4% more per annum.
The world of one person company pensions has changed a huge amount this year. The no annual funding limit PRSA is also a part of the Finance Bill which will come into law in 2023. This will also present some interesting options in the pension planning space.