Thousands of business owners locked out of pensions

New EU rules mean existing arrangements are no longer compliant and regualtor is threatening prosecutions

Tens of thousands of business owners face pensions limbo as the regulator warns they might face prosecution if they continue using their current pension schemes.

But no alternative has been put in place by the Government ahead of a deadline on Friday for new rules to come into force.

In their absence, business owners are being told they must transfer to PRSA arrangements that will see them retiring on a fraction of their planned pension.

The rules apply to anyone who has set up a single member scheme since April last year. About 1,000 such one-member arrangements are established every month.


With little chance of resolution before the budget at the earliest, about 20,000 business owners are likely to be affected.

Business owners tend to start their retirement savings later in life as the focus in earlier years is on reinvesting to build up their businesses. Under one-member pension arrangements, they are able to save a multiple of the amount an ordinary PAYE worker can put into a pension fund in any one year while still securing tax relief.

Figures provides by Brokers Ireland show a person in a single-member scheme could put €150,000 a year into their pension fund at the age of 40, with a view to retiring at 60. That is more than five times the €28,750 a PAYE worker of the same age can put into a pension — because they are limited to 25 per cent of their gross earnings, up to an earnings cap of €115,000.

The disparity widens as people move closer to retirement. The thinking is that most PAYE workers will have started saving earlier.

Current PRSAs are also much more restrictive on what people are permitted to invest in.

“Unless some flexibility is introduced we’re facing a catastrophic situation that will be to the detriment of consumers, very many of whom have no other realistic alternative for their pension savings,” said Rachel McGovern, director of financial services at Brokers Ireland.

An Interdepartmental Pensions Reform and Taxation Group report in November 2020 signalled that PRSA rules would be amended to allow for schemes that closely mirror current single-member schemes. But that has not yet happened.

Under Iorps II governance rules, from July 1st the old single-member schemes are no longer compliant. As a halfway house, insurance companies were offering a trustee service to allow holders of one-member schemes to continue saving. But they have now been warned off by the Pensions Authority, which regulates the sector.

In a notice published last week, it said it had advised insurance companies that the service they were offering was “unlikely to meet the compliance threshold”.

“The authority further advised insurers that noncompliance of new one-member arrangements will not be tolerated post July 1st and that enforcement action, up to and including prosecution may be taken against the pension scheme trustees responsible for running non-compliant one-member arrangements.”

A spokesman for the Pensions Authority says holders of such pension schemes have an obligation to be compliant with the Iorps II rules by July 1st, which is Friday. “This is not conditional on policy or legislative arrangements,” he said.

Brokers Ireland’s Ms McGovern said there was no dispute with the regulator over the rules. “We are just looking for a bit of breathing space for Government to get the new arrangements in place.”

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times