Government Publish Paper on New National Pensions Framework

For every pensioner we have now there are around 6 people at work to support giving a ratio of 1:6; it is estimated that by 2060 that figure will be less than 2, giving a ratio of 1:<2.   The pension time bomb.

In order to try address this inevitable scenario and the financial strain this will put on the Country, the Government launched in March 2010 a new proposed National Pensions Framework.

Key Components

Rise in Retirement Age

Auto Enrolment

Tax Relief at 33%

Employer Contribution equivalent to State Contribution.

Following are some of the key extracts from the document.

Foreword  

Brian Cowen, T.D. Taoiseach, Brian Lenihan, T.D., Minister for Finance 

Mary Hanafin, T.D., Minister for Social and Family Affairs 

“This framework sets out the Government’s intentions for radical and wide-scale 

reform of the Irish pension system. It sets out a fair and equitable approach that 

encompasses all elements necessary for future pension provision. The State will 

continue to provide the bedrock for the pension system with the State Pension, while employers and individuals will be encouraged to share the responsibility with

Government to save and provide for the future.” 

“We know that this long-term framework will pose challenges for us all and 

implementing such radical reforms will require significant commitment from 

Government, the pensions industry, employers and individuals. By working together, we can overcome these challenges and ensure that future generations can look forward to a more equitable, sustainable and comfortable pension in retirement.’ 

Overview of the National Pensions Framework 

Ø  Social Welfare Pensions 

· Mandatory social welfare pension coverage will continue. 

· The Government will seek to maintain the rate at 35% of average weekly earnings. 

· The system will be simplified with a move to a total contributions approach. 

· Homemakers‟ disregard will be replaced with credits for new pensioners from 2012. 

· State pension age will increase to 66 in 2014, 67 in 2021 and 68 in 2028. 

· Arrangements will be put in place to allow people to postpone receipt of the State Pensionand to make up contribution shortfalls. This will increase coverage and employer responsibility. 

Ø  Auto-enrolment 

· There will be matching employer contributions and matching State contributions. The State contribution will equal 33% tax relief (delivery mechanism to be decided). 

· There will be an opt-out mechanism for employees 

· Access to Approved Retirement Funds will be provided. 

Ø  Current Occupational & Voluntary Provision 

· There will be a matching State contribution equal to 33% tax relief (delivery mechanism to be decided). 

· Access to Approved Retirement Funds will be provided for defined contribution scheme members. 

· There will be stronger regulation. 

· A new DB model is proposed which schemes may wish to adopt in future. 

· The funding standard will be kept under review.

Ø  Public Service Pensions 

· A single new pension scheme will be introduced for all new entrants, with effect from 2010. 

Ø  Tracing Service Dormant Benefits 

· 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. 

An Auto-enrolment System 

Employees will be automatically enrolled into a new pension scheme unless they are a member of their employer‟s scheme and that scheme provides higher contribution levels or is a DB scheme. Contributions to the new scheme will be made within a band of earnings, with earnings below and above certain thresholds exempt. 

Employees will be required to make a fixed percentage contribution. In addition, in 

line with the Government commitment, a State contribution equal to 33 per cent tax 

relief will be provided in respect of pension contributions made by the employee 

(within a band of earnings). Employers will be obliged to provide a contribution 

equivalent to the State contribution. For example, a contribution of €4 to the scheme would comprise an employee contribution of €2, a State contribution equivalent to €1and an employer contribution of €1. 

The key features of the auto-enrolment system are as follows: 

· Employees (aged 22 or over) will be automatically enrolled unless they are a 

member of their employer‟s scheme (which provides higher contribution 

levels or is a DB scheme); 

· Contributions to the new scheme will be made within a band of earnings; 

· Employees will be required to make a fixed percentage contribution; 

· There will be a State contribution equal to 33 per cent tax relief and employer 

contributions to match the State contribution; 

· Contributions will be collected through the PRSI system; 

· A range of funds, including a low-risk default option, will be available; 

· Employees can opt out but they will be re-enrolled every two years; 

· There will be a once-off bonus payment for people who remain in the scheme 

for more than five years continuously; and 

· Small DC funds may be transferred into the scheme. 

It is intended that the scheme will be introduced in 2014 depending on the prevailing economic conditions.

 Table 10.1 National Pensions Framework – Key Milestones 

2010

· Publish National Pensions Framework

· Establish framework implementation group

· New public service pension scheme introduced

2011

· Extend New ARF rules to DC schemes 

2012

· Increase contribution for state pension to 520 paid contributions 

(as planned in line with legislation in place since 1997) 

· Replaces homemakers ‟ disregard with credits for new pension 

claimants.

2013

· Review Pensions Insolvency Payment Scheme

2014

· Abolish State Pension (Transition) thereby increasing state 

pension age to 66 

· Introduce auto-enrolment system

2020 · Introduce a “total contributions” approach for State Pension 

(Contributory) 

2021

· Increase State Pension age to 67 

2028

· Increase State Pension age to 68 

For further information and to read the full text click on link below:

http://www.pensionsgreenpaper.ie/downloads/NationalPensionsFramework.pdf