Auto-Enrolment Pension
Auto-Enrolment
The Minister for Social Protection has presented to government the final design principles for a proposed auto-enrolment retirement savings system for Ireland. We are still awaiting the publishment of the Automatic Enrolment Bill which is expected sometime before the end of this year. According to the Department for Social Protections website (December 2023) the commencement date for AE is the second half of 2024.
From what we know so far, the number of workers without a pension is thought to be around 750,000.Of that cohort the department of social protection estimate that 200,000 of these workers pay higher rate (40%) income tax. If their employers do not take any action in terms of including those employees in a Master Trust or employer sponsored PRSA between now and Auto Enrolment launch, those employees will be included in Auto Enrolment.
Investment: Members will have four different investment options to choose from which include a default option, a conservative option, a moderate risk option and a higher risk option. Those funds will be provided by four separate providers, however actual returns achieved for members in their chosen fund will be pooled based on the returns achieved by the four providers for that fund type.
Retirement: Access to the auto enrolment scheme will be linked to the age for state pension access which is currently age 66. Although it is of course welcome that more people in Ireland will now have a pension in retirement, it is important to understand that employee’s included in AE will not enjoy the same benefits currently available in traditional pension arrangements. It should be noted that employees would:
• Not be entitled to 40% tax relief (where earnings are sufficiently high).
• Not receive financial advice (no advisor linked to the scheme).
• Have less flexibility in terms of investment choice.
• Not be able to make Additional Voluntary Contributions (AVCs) as this is not possible under current guidelines.
• Not be able to access funds until state pension age which is in stark contrast to rules in occupational pension schemes which can allow access from as early as age 50.
We expect 2024 to be a year where employers seek the advice of Financial Brokers in terms of their pension obligations for employee’s. We have already seen many employers seek to satisfy their future obligations in terms of pension provision under the traditional route by setting up an occupational pension scheme (Master Trust) or employer sponsored PRSA and thus avoiding Auto Enrolment.
If you are looking for more information please contact Frank Ryan Financial Services
Source; Zurich Life