Ronan’s Monthly Blog – Pensions Auto – Enrolement

The pensions landscape in Ireland has become very cluttered over the years with numerous product options available to strive to provide you with your pension benefits on retirement. Presently your pension may be part of your employers group pension scheme, you may be a Director/Owner of a small limited company where your choice has been to get your company to pay into an executive pension. Sole traders can opt for personal pensions or PRSA’s. You may have retired but continue to have a pension product in retirement such as an approved retirement fund, indeed you may have transferred a retained benefit from a previous employment situation into a personal retirement bond. Approximately 12 pension vehicle choices are available, depending on your employment type and income source or indeed your stage in life (pre or post retirement)

Interestingly, pension coverage in Ireland has fallen from 44.9% of the population in 2009 to 33% in 2017. Our Governments response was to issue a roadmap in February 2018 to try and overhaul the pension landscape as described above. There is now an action play set in place for the next 5 years which has been presented to us in 6 different strands

• Reform of the State Pension
• Auto Enrolment Scheme
• Improving Governance and Regulation
• Supporting the operation of DB Schemes
• Support fuller working lives

These may seem aspirational in real terms, but it does highlight a commitment to eventually try and bridge the ever growing gap in individual pension funding. The bill (in its current draft form) will demand higher regulatory standards for trustees of schemes and has closer supervision and management of schemes imbedded in its content. With this in mind a “Master Trust” situation is likely to be established with multiple employer schemes being held under one specific master trust.

OTHER ACTIONS UNDER THIS NEW ROAD MAP:

There has also been an examination of the current pension situation by the Interdepartmental Pensions Reform Forum and Taxation Groups. Review of the marginal tax rate, tax relief, drawdown from ARF and other anomalies and inconsistencies are been taken into account. “Equalisation and Simplification” has dominated the department’s mindset. Even assessing lump sum tax free sum on drawdown in retirement is being examined. There has been a suggestion that the tax-free sums across the board will be based on 25% of the fund-A question may then arise as to where this leaves Defined Benefit schemes and indeed civil service pensions where in most instances’ individuals take their lump sum based on service and salary? Equality surely will have to take precedence. Whilst the rules of a Defined Contribution scheme differ from that of a Defined Benefit scheme in many ways, the current system strives to allow one to mirror the other. For example, Defined Contribution Occupational Scheme rules will allow individuals use the salary and service rule (known as the revenue uplifted scale) simple because the same rule exists in the Defined Benefit arena. Most commentators would agree that “Simplification may not come easy”. This new system will mean that employers will be obliged to enrol all employees aged between 23 and 60 who earn more than €20,000 where their employees are not already members of a registered scheme. The self employed and those under age 23 and over 60 can opt out. The department of social welfare and pensions have set a target contribution of 6% of gross salary by employer and employee with the state apply 2%. A Central Processing Authority will receive these new contributions and forward them to the four pension providers appointed under the scheme. Investment fund choice will be restricted to 3 lifestyle type funds, low medium or high risk. Annual management fees are proposed to be capped at 0.5%.

WHERE TO GO FROM HERE:

Considering the changes which are now coming down the line, we have been advising all our corporate clients to take control of this additional employer compliance situation now. This means that rather than have the concept imposed on you and your employees, you can develop a scheme that suits your needs and requirements. By setting up an occupational scheme now, your employees will appreciate the benefit and for employers, it attracts and maintains your talent pool.

In summary, all employers need to be aware of the new AE system (Auto Enrolment) coming down the line in 2022. The overall concept of providing better pension coverage for all has to be applauded, however as outlined early in this blog “equalisation and simplification “doesn’t come easy”.

If you’re an employer with even more questions, or feel burdened by the thoughts of pension funding for employees, please do give me a call on 087-2765147 or send me an email at ronan@rmclifeandpensions.com

Cheers Ronan

Next time- let’s think outside the box. Christmas is coming.