In February of this year the Government published an ambitious 5 year pensions roadmap outlining its vision for the future of the Irish pension system: The “Roadmap for Pensions Reform 2018-2023” is a wide-ranging document and focuses on all aspects of the retirement system. If proposed changes arefully implemented we will see a retirement regime dramatically different to the one which we are currently familiar with. The report encompasses all aspects of the retirement system. There are numerous consultations to be held and the indicated timelines for implementation seem ambitious but we shall see. The report runs to almost 50 pages and is divided into six distinct sections. This article will summarise some of the key points as laid out under the various headings .The six sections are as follows.
- State Pension
- Introduction of an auto enrolment scheme
- Improving governance and regulation
- Support for the operation of Defined Benefit (DB) schemes
- Public service pensions reform
- Retirement readiness
Key Points -Section 1 – State Pensions
Move to a Total Contributions Approach (TCA) by 2020
- Workers with 40 years’ social insurance contributions will qualify for the full pension, with allowances for gaps of up to 20 years for caring duties.
Continued indexation of the SCP
- Future increases to be linked to CPI and average earnings
- Set a formal benchmark of 34% of average earnings
No increases to qualifying age until at least 2035
- Other than those already provided for in 2021 and 2028
- Any change after 2035 will be linked to increases in life expectancy
Annual review of social insurance rates to consider affordability
Key Points – Section 2 – Auto Enrolment
Introduce system of auto enrolment by 2022. Example of suggested eligibility
- All employees aged 23+
- Earning €20,000+ p.a.
- No existing private pension provision in place
An opt out period will need to be set e.g. 9 months. Self-employed or those with earnings lower than €20,000 may be allowed to opt in.
Contributions from employer and employee, with the State matching the employee contribution 1:3 (33% Government top up).
- Contributions by the State to replace not augment existing tax relief system
- Upper limit of 6% of gross salary on employer contributions
Benefits payable when worker becomes entitled to the State Pension
Key Points – Section 3 – Improving Governance and Regulation
Introduce a new governance framework
- Pensions Authority will have new powers to oversee compliance
- Schemes must show they are fit for purpose
New set of professional standards for trustees
Multi-employer pension structures (Master Trusts)
- Reduce the number of different types of retirement savings vehicles aimed at doing the same thing
Approved Retirement Fund (ARF) review
- Is there a need for regulatory oversight
- Review of ARF criteria including specified income requirement
- Group ARF products or in-scheme drawdown option
Raise scheme governance standards
- Fitness and probity regime for pension schemes
Key Points – Section 4 – Defined Benefit (DB) Schemes
Over 25% of DB Schemes not meeting Actuarial Funding Standard
“Wind up” standard
- Improved level of protection for scheme members and beneficiaries increased powers of the Pension Authority
- More frequent provision of information
- Earlier notification of any scheme difficulties
- More powers to take action
Key Points – Section 5 – Public Service Pensions
Pension Related Deduction (PRD) to be converted to permanent Additional Superannuation Contribution (ASC)
- From 1 January 2019
- Currently PRD does not count as a pension contribution for the purposes of the age-related tax relief limits
- ASC will be treated as an employee pension contribution
Introduce legislation to increase compulsory retirement age for public servants to 70 for those recruited before 1st April 2004
- Interim arrangements already in place
Key Points – Section 6 – Retirement Readiness
Develop proposal for State Contributory Pension deferral scheme
- Increased rate to apply when claiming
An inter-departmental Government group to be established to review mandatory retirement age practices across industry sectors
Review retirement ages across different pension products with a view to creating a standardised upper age limit
- Also greater standardisation of drawdown rules
Improve awareness amongst older workers of positive financial incentives in continuing to work e.g. no PRSI for those over age 66, reduced USC rate
This report marks the beginning of a long road which will see huge change to the pensions landscape in Ireland. Much of the detail remains to be finalised so figures and dates included in this document are those indicated in the report and are not finalised.
The report details the various public consultations which will take place relating to certain aspects. Due to the scale of the proposed changes and the tight timelines as laid out in the report it remains to be seen if these timelines will be met and whether these proposed changes will be fully implemented. What is certain is that change is coming and based on the stated objectives of the report the Irish Pensions regime of the future will be radically different to the regime currently in place.
Author: James Caron , Financial Consultant at Lucas Financial Consulting Ltd, lucasfinancialconsulting.com/
Whilst care has been taken in its preparation this document is of a general nature only and should not be relied on in relation to a specific issue without taking appropriate professional advice. Any views and opinions expressed are subject to change.