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Government Roadmap for Pension Reform 2018 -2023

The Government has released iRoadmap for Pension Reform 2018 -2023.

Key points in the announcement include:

A New Automatic Enrolment Retirement Savings System

A new 'Automatic Enrolment' retirement savings system will be introduced from 2022 to support and encourage personal savings provision.

Reform of the State Pension including the Total Contributions Approach

A Total Contributions Approach (TCA) for the State Pension (Contributory) will be introduced from 2020, including a new 'HomeCaring Credit'.

The value of State pension payments will be maintained at 34/35% of average earnings. Future increases will be explicitly linked to changes in prices and/or wages.

Improving Governance and Regulation including the EU IORPS II Directive Improvements in pension scheme governance standards and regulatory capacity, linked to the new EU IORPs II pensions directive.
Supporting Fuller Working Lives Greater individual flexibility in retirement decisions and support for fuller working lives in both public and private sector employment.
Public Service Pension Reform Reforms to public service pensions to ensure the sustainability whilst safeguarding the delivery of promised retirement benefits.
Measures to Support Defined Benefit Scheme Sustainability Measures to respond to the ongoing difficulties in DB schemes and provide for improved levels of protection for scheme members and beneficiaries.

Automatic Enrolment

Let’s have a closer look at the suggestions relating to Auto Enrolment:

Outlining the need for the new Automatic Enrolment system to support those without retirement savings to supplement their State pension, Minister Doherty said:

"It is increasingly evident that most Irish workers are not saving enough, or indeed at all, for their retirement years. Many people will be faced with a serious reduction in their living standards when they retire – a fall in income they clearly do not want. Having examined the options and looked at international experience, the Government has decided that a new Automatic Enrolment supplementary retirement savings system, where the individual retains the freedom to opt-out, is the best approach to take. When introducing this system, we will ensure that those on low to middle incomes receive financial support from both the Government and their employer".

The roadmap states that the Government will make final decisions regarding the operational and design characteristics for automatic enrolment after the completion of a public consultation process.

This includes finalising the following plan elements:

The report includes a ‘strawman’ of likely characteristics, but makes the point that these are not finalised. A draft of these will be available for public consultation in Q2 2018.

The report mentions the following potential features for Auto Enrolment pensions in Ireland:

  • All employees in the private sector over identified age and income thresholds (e.g. 23 years of age and €20,000 per year) and without existing private pension provision will be automatically enrolled into the system.
  • Workers on lower salaries, self-employed workers and workers with existing private pension provision will be able to opt-in to the system.
  • Contributions into the system will be made by both workers and employers and the State will top up contributions.
  • Those workers who are automatically enrolled in to the system will be allowed to opt-out from participation following a minimum period of participation (e.g. 9 months) and any contributions made by the worker during the minimum period will be refunded.
  • The exact ratio of contributions is to be determined during the design phase. As an example, starting from a modest base and automatically escalating on a scheduled basis over a period of time, employers could be asked to match worker contributions euro for euro subject to an eventual upper limit on employer contributions of 6% of their gross salary. Similarly, the State might match worker contributions on a 1:3 basis. Under such a scenario a worker making a personal contribution of 6% of their salary would see that contribution matched by an employer contribution of 6% and a State contribution of 2%; bringing the total contribution into the fund to 14% of salary. Any contributions made by the State will replace, rather than augment existing tax reliefs.
  • Retirement benefits accrued under the system will become payable at the same age as the State pension becomes payable.
  • Workers with pre-existing personal or occupational pension arrangements will be able to retain those arrangements.

Sources

For more information read the full press release from Department of Social Protection here: "Roadmap for Pension Reform 2018 -2023"

The full report “A Roadmap for Pensions Reform 2018-2023” is available here.