national pensions framework seminar
TRANSCRIPT
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National Pensions National Pensions FrameworkFrameworkMarch 2010March 2010
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AGENDA
• Background• Aims • Principles• Key Areas• Observations and Conclusions
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BACKGROUND
• First Pensions Review Late 80’s Pensions Act
• Second Pension Review – NPPI Late 90’s PRSAs
• Third Pensions Review – NPF 2010 ?
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BACKGROUND
• Pensions Green Paper - 2006• Mandatory Pension Paper - 2007• Commission on Taxation Report – 2009• McCarthy Report – 2009
Public Sector pensions
• Renewed Programme for Government – 2009 33% tax rate
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AIMS
• Security• Equity• Choice• Clarity• Increase Coverage (low and Middle
Incomes)• Ensure State Support is Equitable and
Sustainable
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PRINCIPLES
• Affordable and Sustainable• State Pension at 35% of Average Weekly
Earnings• Improve both coverage and contributions• Equitable Tax incentives• Involve Employers, Employees and State• Support longer working by flexibility• Focus on Future; ignore Legacy issues
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AUTO ENROLMENT
• Implementation date 2014
• State managed scheme
• compulsory contributions equivalent to 8% of gross pay
• Employee pays 4% from net pay
• State pays 2% and employer pays 2%
• Wage bills up 2% plus administration costs
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AUTO ENROLMENT
• Contribution triggered if earnings exceed threshold
• Example given:
Trigger at €357 per week
8% of salary between €127 p.w. and €995 p.w.
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AUTO ENROLMENT
The table is based on the following assumptions: 5% earnings growth; 7% investment returns; 22:1 annuity for pension; a 40 year employment career. These are reasonable assumptions over a 40 year period.
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AUTO ENROLMENT
• Opt out after 3 months
• Irrevocable after 6 months
• Auto-renewal every 2 years – hassle for employers
• Incentive - once off bonus payment after 5 years.
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AUTO ENROLMENT
• Members are given a limited range of funds.
• Funds are private sector chosen by competition.
• Exemption for those in an employers defined contribution scheme which provides for the 8% contribution and the 2% employer’s portion.
• The alternative funds available may be more attractive than the auto-funds.
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AUTO ENROLMENTAustralian Experience
• Introduced in 1992: to answer same issues
• “resistance crumbled”
• 9% and enjoys wide support
• Employer contributes to scheme of employees choice
• Several different types of arrangement – general and self administered
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AUTO ENROLMENT
2006 Green Paper• Predicted negative impact on GDP and GNP• Reduction in real disposable income• Impact on competitiveness• Savings would increase
Government says:• 2014 only if economic conditions permit• It is conscious of cost to small firms• “the implementation of these proposals will be
cognisant of the current and emerging economic situation”
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STATE PENSION
• Social Insurance Fund decimated
• Retirement age to increase gradually to 68
• Contributory pension based on total contributions made (currently average)
• Home Carers to be recognised with credits
• No credits for legacy issues (i.e. marriage bar)
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PRIVATE SECTOR
• 33% Rate on Personal Contributions• DC Retirement Benefits Simplified• Multiplicity of Contracts to be reviewed
PRSAs, Personal Pensions, Buy-out Bonds
• Defined Benefit Schemes New model proposed
• Pension Board Powers to be reviewed
• Info to Members; Funding Standard Kept Under review
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33% RATE
• Applies to all personal contributions To achieve greater equity?
• 15%- 40% limits remain• €150,000 limit remains• Employer Contributions Unaffected• Pension Funds Remain Exempt
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BENEFITS
• ARFS – available to all DC Not to current Pensioners; DB Implemented 2011
• Specified Income To c. €18k AMRF to end before 75 if this is exceeded
• Tax Free Lump Sum same as Before Taxation above €200k to be considered during implementation 25% or 1.5 x Salary?
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DEFINED BENEFITS
• Possible new model• Fixed Contribution Rates• Flexible Benefits• Allow for Life Expectancy• All beneficiaries Revised Annually and
Equally• Previous Underpayment due to Poor
Investment to be caught up
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PENSION BOARD
• Powers to be reviewed• Powers re Lifestyling• Licensing of Schemes• Info to Members
To be kept under review
• Funding standard To be kept under review
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PUBLIC SECTOR
• New Scheme New entrants only Across all public and civil servants
Legislation by end 2010
• Benefits in line with Private sector Integrated with Social Welfare Based on Career Earnings
Annual Accrual Rate NRA 66 - 70
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PUBLIC SECTOR
• Contributions at 6.5% On all pensionable income
• Fast accrual Remains for Guards, Army Added Years gone
• Applies to TDs, Judges, President in line with Private sector Based on Career Earnings
• Possible CPI for Existing Pensioners
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Miscellaneous
• Flexible Working State pension age to rise to 68
• Tracing benefits Tracing mechanism Possible Dormant pensions Fund
• Financial Education By the Banks!! 6 months Reports from IBF on Progress