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Pensions Roadmap 2018-2023 unveiled

Pensions Roadmap 2018-2023 unveiled

The Government has unveiled a pension roadmap outlining an action plan for radical reform of pensions over the 5 years 2018-2023.


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Brian Morrissey

Head of Insurance & Actuarial

KPMG in Ireland


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The Government has today unveiled a pension roadmap (PDF, 950KB) outlining an action plan for radical reform of pensions over the 5 years 2018-2023. The roadmap signed by An Taoiseach, the Minister for Employment Affairs & Social Protection (DEASP), and the Minister for Finance & Public Expenditure and Reform considers an ambitious plan for the comprehensive reform of the entirety of the pension system including the state pension, public sector, private sector and indeed those currently without any pension at all.

The roadmap includes specific measures presented under six strands with the specified aim of ‘modernising the pension system and continuing to target incentives at those most in need'.

Auto enrolment detail

Details in relation to auto-enrolment proposals in particular have been eagerly awaited. The Minister for DEASP confirmed the Government’s intention to introduce auto-enrolment from 2022. This will see all private sector workers over a certain age and income level automatically signed up for a pension into which the employee, the employer and the State will contribute.

Key design features which will be subject to consultation later in 2018 of the yet to be finalised strawman proposal in respect of Auto-enrolment as described in the document include:

  • 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.
  • 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 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 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.

The six strands and key actions tabled

The six strands and some of the key actions tabled with associated ‘owners’ are as follows:

Strand Action
1. Reform of the State Pension - including the ‘Total Contributions Approach

Formalise the process for indexing the state pension in future years.

There is reference in the document to instituting a process by the end of 2018 whereby future changes in pension rates are explicitly linked to changes in the consumer price index and average wages (DEASP I DPER). ,

Introduce the total contributions approach for the state pension contributory. A detailed proposal for the design and a public consultation will be commenced by Q2 2018. (DEASP)

Offer those in receipt of state pension contributory who retired post 2012 the option of a pension review based on the TCA model to take effect from March 2018. This calculation can include up to 20 years of a new Home Caring credit for period spent in homemaking I caring roles. There will be no further increases to state pension age (which is scheduled to increase to 67 in 2021 and 68 in 2028) before 2035.

From 2035 onwards future changes to the state pension age will be linked to life expectancy. (DEASP)

In relation to funding state pensions on a sustainable basis progress work to consider and present options for the amalgamation of USC and PRSI, via the Working Group recently established by the Minister for Finance. (DFin).

Publish a consultation paper by Q4 2018 on an appropriate rate-setting I funding approach for the Social Insurance Fund. (DEASP).

2. Building Business Readiness - A New Automatic Enrolment Savings System

Publish a ‘strawman’ automatic enrolment system for public consultation by Q2 2018 (DEASP).

Thereafter finalise the design and develop enabling legislation.

An Interdepartmental Automatic Enrolment Programme Board, chaired by the DEASP, will be established to provide strategic direction and ensure that the detailed operational arrangements are in place to allow the first enrolments to take effect no later than 2022. Progress against the project timeline will be reported on a regular basis to Government via the Cabinet Committee structure. Ql 2018 (AE Programme Board)

The Government will ring-fence the required resources to immediately establish a new full time Automatic Enrolment Programme Management Office (PMO). Given the requirement to develop a firm evidence base to underpin all Government decisions, the PMO, which will be located within the DEASP, may require allocation of staff with a range of skills and expertise from across the public service and beyond. Ql 2018 (DEASP)

In order to ensure that the design of the automatic enrolment system takes due account of the macro-economic impacts of increasing savings rates the Government will commission an assessment of these impacts to be completed by the end of Q4 2018 (DEASP)

3. Improving Governance and Regulation - including the EU Pensions Directive IORP II

There are fourteen specific actions related to this strand some of which are:

The Government will develop and publish legislation by the end of Q3 2018 to transpose the IORP Il Directive into Irish law with effect from 2019. Q3 2018 (DEASP)

The DEASP will be charged with identifying further powers/measures to enable the Pensions Authority (‘PA’) to take pre-emptive action to address shortcomings identified on a prospective, prudential and risk based basis. Q4 2019 (DEASP & PA)

The Interdepartmental Pensions Reform and Taxation Group will identify and progress measures to improve the harmonisation of rules to eliminate anomalies in the treatment of different retirement arrangements including taxation treatment. Q4 2018 (IDPRTG)

Identify the options and develop recommendations to coherently rationalise the number of individual pension vehicles which exist at present. Q2 2020 (IDPRTG)

Review the cost of funded supplementary pensions to the Exchequer. To inform decisions relating to financial incentives for retirement savings and underpin the development of the automatic enrolment system (see Strand 2), this will include an assessment of the economic and social benefits delivered and an evaluation of equity in the distribution of tax expenditure on pensions. Q3 2018 (IDPRTG)

Undertake a broad review of the utilisation of the ARF option and consider whether regulatory oversight of this product is fit for purpose. This will include a review of ARF criteria set out in tax legislation including specified minimum income requirements. It will also include identifying measures to address any provider/consumer protection gap and the potential to facilitate group ARF products or in-scheme drawdown. Q4 2018 (IDPRTG)

4. Measures to support the Operation of Defined Benefit Schemes

Advance the Social Welfare, Pensions and Civil Registration Bill 2017 to give effect to new controls in relation to funding of DB schemes. Q2 2018 (DEASP)

Identify and investigate other potential regulatory measures to improve effective oversight and transparency in the financial status of DB schemes. Q3 2018 (DEASP & PA)

Arrange for further consultations to take place with sectoral representatives to identify any appropriate and sustainable funding standard reform options. Q4 2018 (DEASP & PA)

5. Public Service Pensions Reform

Introduce legislation to increase the compulsory retirement age for the public service workforce to 70 for public servants recruited before 1st April 2004. Q2 2018 (DPER)

The Pension Related Deduction will be converted into a permanent Additional Superannuation Contribution (ASC) for public servants beginning on 1st January 2019. Ql 2019 (DPER)

6. Supporting Fuller Working Lives

The recently published ‘Actuarial Review of the Social Insurance Fund 2015’ will be used to inform the preparation of an options paper to allow deferral of the State pension contributory on an annual basis to include actuarial increases in payments. Q4 2018 (DEASP)

Subject to Government approval, legislation will be drafted and brought through the Oireachtas to effect the changes. Q2 2019 (DEASP)

Consideration will be given to allowing those without a full social insurance contribution record increase their retirement provision by choosing to continue making PRSI contributions beyond State pension age and up to the actual date of retirement. Q4 2019 (DEASP)

The Irish Human Rights and Equality Commission (IHREC) will now prepare and publish guidance material for employers on the use of fixed-term contracts beyond normal retirement age. Q2 2018 (IHREC)

An Interdepartmental Group chaired by the DEASP will be convened to review mandatory retirement age practices. Q4 2018 — Ql 2019 (DEASP)

The Interdepartmental Pensions Reform and Taxation Group will review the legislation governing the various ages at which pensions can be drawn down together with any apparent anomalies arising in the treatment of different retirement arrangements with a view to a standardised upper age limit. Q4 2018 (IDPRTG)

Undertake a communication campaign targeting employers and employees outlining the financial incentives available to those who may wish to continue working in to their later years. Q4 2018 (DEASP/DFIN)

The full report is available on the DEASP website at: (PDF, 950KB)

KPMG Commentary

It is hugely encouraging to see government act decisively on pensions and take a holistic cross departmental and strategic approach to the pension challenge. The report encapsulates a comprehensive plan for action around the key pension issues facing Ireland today. In particular, the auto-enrolment initiative is a great first step for increasing pension coverage and ensuring those currently without a pension commence saving as and from 2022.

We look forward to continuing to contribute to the debate on pension policy issues as it evolves and assisting our clients in understanding the implications in light of today’s far reaching publication on pension reform.

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