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From Accountingnet.ie In Practice
There has already been a wealth of media coverage in relation to the National Pensions Framework document (“the Framework”) since its publication in March 2010. However, there are also a number of significant omissions from the Framework. They include the following: Mandatory Pensions The Framework proposes the establishment of an auto-enrolment scheme for employees who are not eligible for a defined benefit (“DB”) scheme or a defined contribution (“DC”) scheme (if any) of their employer. However, whilst an employee must opt into rather than out of this new scheme, this is by no means the same as making pensions mandatory. As is currently the case, membership of a pension scheme will only be compulsory where it is a condition of the employee’s contract of employment. The hope here perhaps is that the “inertia”, which the government feels has stopped people taking upprivate pensions, will be replicated in people’s attempts to leave pension schemes. But as the Pensions Board has already noted , contributions to DC schemes are likely to have fallen in 2009, suggesting that the recession and the resultant strains on personal income are impacting negatively on the making of contributions to pension schemes. In a recent survey conducted by UK consultancy firm, Capita Hartshead, scheme trustees said that, on average, they expected anything between 25% and 40% of employees to opt out of NEST (the UK’s centralised auto-enrolment scheme) or any existing employer scheme offering auto-enrolment, when the practice commences there in 2012. The survey also makes the point that the percentage could well be adversely affected by the prevailing economic conditions at the time auto-enrolment is introduced. Therefore, it is entirely possible that many (if not the majority of) autoenrolled employees will still choose to opt out of the auto-enrolment scheme – adversely affecting the stated object of significantly higher pensions uptake. As a result, it may be that the whole issue of mandatory pensions will have to be revisited again in the future. Personal Retirement Savings Accounts (PRSAs) Another thing conspicuous by their absence from the Framework’s future pensions strategy are PRSAs. When the first PRSA products were approved in 2003 they were seen as being the solution to the poor uptake in private pensions. However, they were eclipsed by the government’s more glamorous SSIA scheme and have not stimulated the growth in membership of private pension schemes that was hoped for. Presently, section 121 of theThe Framework provides that once the auto-enrolment scheme comes into force, all persons aged 23 or more who enter or change employment will join this scheme unless they are eligible for their employer’s existing DB or DC scheme. This would appear, at the very least, to restrict the application of section 121 to persons aged 22 and under – effectively killing off PRSAs going forward. But what of those persons who already have PRSAs? The Framework offers a couple of hints on this. Firstly, it is likely that employees will be able to transfer funds to the auto-enrolment scheme from “small” DC schemes (including PRSAs). Secondly, whilst the Framework is at pains to point out that “the purpose of these reforms is to increase occupational pension coverage for people who do not currently avail of such an arrangement rather than to replace current provision.” it does go on to state, in relation to personal retirement bonds, personal pension plans and PRSAs (which were never intended to co-exist anyway), that: “Given the complexity of current arrangements, the range of personal pension vehicles available will be reviewed with a view to rationalising provision in this area.” It seems entirely reasonable to conclude from this that, from 2014, PRSAs may not exist in their present form or indeed at all. Potential PRSA providers would be wise to keep this in mind if they are seeking approval to launch PRSA products. A Long-Stop Date for Retirement For the first time, the Government plans to allow people to defer payment of their State Pension and to receive an actuarially increased State Pension at a later retirement date. The Framework suggests that the person concerned will be able to select their relevant retirement date. However, the framework makes no mention of any restrictions such as the possibility of a long-stop date (say a person’s 75th birthday). Given that the State Pension age is likely to be increased to 68 and that, other than in exceptional circumstances, the Revenue currently only allow a person to have a normal retirement age of between 60 and 70 , it may be that discussions have yet to take place as to the latest age at which normal retirement can be considered reasonable. Details of How Members of Schemes will be Traced An interesting proposal in the Framework is the development of: “a tracing service....for both scheme trustees and individuals which will facilitate people in tracing pension rights accrued in former employments.” Tracing services exist in other countries (UK pension schemes are required to register with the Pension Tracing Service) enabling members to trace pension schemes of which they were previously members and thus assist in claiming benefits or updating their contact details. However, the Pension Tracing Service does not enable the relevant pension scheme trustees to trace missing members or their families. In the UK, the tracing of former pension scheme members by trustees is often carried out by private credit management firms, meaning that the costs can be considerable. During a recent initiative in South Africa, to apportion up to ZAR 80 billion of pension scheme surpluses amongst members, the tracing of those members proved to be the highest administrative cost. It remains to be seen whether a lowcost mechanism can be found for the tracing of members in Ireland. State Pension Credits for Those Affected by the Marriage Bar The Framework provides for a new system of State Pension credits for homemakers similar to those already in place for those in receipt of carer’s In 2007, National Women’s Council of Ireland (NWCI) raised the possibility of legal action against the State should the Framework not include steps to redress those disadvantaged by the marriage bar. It remains to be seen whether, given the Government’s refusal to backdate credits beyond 1994, the NWCI follows through with this action. McDowell Purcell will take a more in-depth look at the National Pensions Framework at our breakfast seminar to be held on 30th June at the Radisson Blu Royal Hotel, Golden Lane, Dublin 8. James McConville of McDowell Purcell and Aidan McLoughlin of the Independent Trustee Company (ITC) will present on the likely implications of the Framework for employers, employees, trustees and their advisers. Date: Wednesday 30th June There is no charge for attending this seminar.
Partner McDowell Purcell, The Capel Building, Mary’s Abbey, Dublin 7. jmcconville@mcdowellpurcell.ie © Copyright 2005 by Accountingnet.ie |
