Pensions
The National Pensions Framework was published at the beginning of March and sets out the Government’s intentions for the reform of the Irish pensions system. Some of the main points are outlined below.
Increase in Pension Age
The state pension age will be increased gradually from the current 65 to 68 in 2028.
Taxation
Tax relief at the marginal rate for employee contributions to existing pension schemes and individual arrangements will be replaced by a State contribution equal to 33% tax relief. No specific timescale for this change is given. The framework says that it is likely that age-related contribution limits and an overall earnings limit will be retained in some form. It would appear that contributions will also continue to attract PRSI and Health Levy relief.
The taxation of lump sums greater than €200,000 will be “considered and developed during the implementation of the framework”.
Auto-Enrolment
The detailed arrangements for this scheme are to be developed. The Government plans to introduce the scheme in 2014 “but only if it would be prudent given the economic conditions prevailing at that time”.
Employees over age 22 will automatically be enrolled in the new pension scheme unless they are a member of an employer’s scheme, which provides higher contribution levels or which is a Defined Benefit (DB) scheme. Employees can opt out of the scheme but will be automatically re-enrolled every two years. The scheme will be mandatory for employers.
The total contribution will be 8% (within a band of earnings to be determined) – 4% from the employee, 2% from the employer and 2% from the State (equivalent to tax relief at 33%). Contributions will be collected through the PRSI system and the portable personal accounts will be administered by a central agency. There will be a range of investment options including very low risk funds and life styling will be built in but there will be no Government guarantee on investment returns. The funds available will be provided by the private sector following a competitive process run by the State. There will be a facility for individuals to transfer existing small Defined Contribution (DC) funds to the new arrangement.
ARF-s
From 2011, all DC funds will have access to Approved Retirement Funds (ARF-s). Individuals will be required to have a permanent income stream in place which may be in the region of 1.5 times the Contributory State Pension. The Approved Minimum Retirement Fund (AMRF) requirement will no longer apply.
Simplification/Transparency
The range of personal pension vehicles available (PRSA-s, RAC-s, BOB-s) will be reviewed with the aim of reducing complexity in this area. Government will introduce regulations to increase the transparency of pension charges.
Defined Benefit
The report suggests a possible approach to restructuring DB schemes.
Tracing
A tracing service will be put in place to facilitate the tracing of pension rights by former employees and scheme trustees. Consideration will be given to the establishment of a State-managed fund into which untraceable accounts would be deposited (modelled on the Dormant Accounts Fund).
Finance Act
The Finance Act confirms the exclusion of all pensions business from the scope of the life assurance levy with effect from 1st January 2010.
Money-Laundering
The Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 was signed by the President in early May. The new requirements will come into effect in mid July.
The Financial Regulator has been carrying out a consultation exercise on the draft core guidance notes for the financial services industry and plans to do the same with the various sectoral guidance notes as soon as these are available. See www.financialregulator.ie for more information.