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National Pensions
      Framework
      March 2010
AGENDA




•   Background
•   Aims
•   Principles
•   Key Areas
•   Observations and Conclusions



                                   2
BACKGROUND

 • First Pensions Review
       Late 80’s
       Pensions Act

 • Second Pension Review – NPPI
       Late 90’s
       PRSAs

 • Third Pensions Review – NPF
       2010
       ?




                                  3
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




                                            4
AIMS

  • Security
  • Equity
  • Choice
  • Clarity
  • Increase Coverage (low and Middle
    Incomes)
  • Ensure State Support is Equitable and
    Sustainable



                                            5
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



                                              6
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



                                                 7
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.



                                                  8
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.
                                                                                                               9
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.



                                                      10
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.


                                                    11
AUTO ENROLMENT
Australian 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

                                                     12
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”


                                                   13
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)

                                                      14
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




                                                   15
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




                                            16
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?




                                                                       17
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



                                             18
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




                                   19
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




                                                20
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




                                           21
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




                                                 22

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National Pensions Framework Seminar

  • 1. National Pensions Framework March 2010
  • 2. AGENDA • Background • Aims • Principles • Key Areas • Observations and Conclusions 2
  • 3. BACKGROUND • First Pensions Review  Late 80’s  Pensions Act • Second Pension Review – NPPI  Late 90’s  PRSAs • Third Pensions Review – NPF  2010  ? 3
  • 4. 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 4
  • 5. AIMS • Security • Equity • Choice • Clarity • Increase Coverage (low and Middle Incomes) • Ensure State Support is Equitable and Sustainable 5
  • 6. 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 6
  • 7. 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 7
  • 8. 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. 8
  • 9. 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. 9
  • 10. 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. 10
  • 11. 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. 11
  • 12. AUTO ENROLMENT Australian 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 12
  • 13. 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” 13
  • 14. 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) 14
  • 15. 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 15
  • 16. 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 16
  • 17. 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? 17
  • 18. 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 18
  • 19. 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 19
  • 20. 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 20
  • 21. 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 21
  • 22. 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 22