Cabinet approves auto-enrolment scheme

Brendan Burgess

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Minister Doherty Announces Key Elements of Design for New Automatic Enrolment Retirement Savings System

www.welfare.ie

 
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No mention of curtailing the tax relief on pension contributions in the article...
 

Minister Doherty Announces Key Elements of Design for New Automatic Enrolment Retirement Savings System

www.welfare.ie

The key features agreed today include:
  • Current and new employees aged between 23 and 60 years of age and earning €20,000 or above per annum across all employments will be automatically enrolled;
  • Employees earning below €20,000 per annum and employees aged under 23 and over 60 will be able to ‘opt-in’ to the system;
  • There will be no employee waiting period before enrolment;
  • Employees who are existing members of a pension scheme/contract which meets prescribed minimum standards and contribution levels will not be automatically enrolled;
  • Employers will be required to make a matching (tax deductible) contribution on behalf of the employee i.e. at a specified contribution rate;
  • Employer contributions will be limited to a qualifying earnings threshold of €75,000 – which will be reviewed over time;
  • Contributions during the first six months of membership will be compulsory;
  • Member opt-out of the system will be facilitated in a two month ‘opt-out window’ (between the start of the 7th month and the end of the 8th month);
  • Thereafter, a limited number of ‘Savings Suspension periods’ will be facilitated for members who wish to temporarily cease making contributions. Employer and State contributions will also cease in this scenario;
  • Members who opt-out will be automatically re-enrolled after three years but will have the ability to opt-out again under the same circumstances outlined above; and

  • Early access to accumulated retirement savings may be provided on the grounds of ill health and enforced workplace retirement.
  • A Central Processing Authority (CPA) will be established by the State and will be responsible for sourcing, on a competitive basis via an open tender, a limited number of Registered Providers to provide a defined suite of retirement savings options;
  • The CPA will establish minimum standards for service delivery and product features required of all providers, e.g., the number of investment fund options for members, service response times, etc.;
  • Employees will be automatically enrolled with the Central Processing Authority by their employer on commencement of employment;
  • Employees (rather than employers) will be responsible for selecting a provider and a savings fund option. In the absence of any savings decision, the enrolled employee will be automatically allocated to the default fund of one of the Registered Providers on a carousel basis;
  • The initial contract period for service delivery by Automatic Enrolment Registered Providers will operate for a period of ten years;
  • The CPA will seek to set annual administrative, management and investment charges of no more than 0.5% of assets under management. This charges cap will apply to all providers;
  • Each Registered Provider will be obliged to offer a similar range of ‘standard choice’ savings fund options including a default fund for those who elect not to exercise choice;
  • These funds will operate on a Defined Contribution basis;
  • These products may incorporate a ‘lifestyle’ or ‘target date fund’ investment approach and will be defined by reference to risk profile;
  • Members will be entitled to transfer funds accumulated in the automatic enrolment system (contributions plus investment returns minus investment and management fees) between the savings products;
  • Invested funds and scheme membership will follow the member when members change employments.
 
So they are forcing people to contribute 6% of their salaries. They are forcing employers to match this, so future salary increases will be reduced by this amount.

So in effect, people will be contributing 12% of their income.

This will make it much more difficult for people to buy a home.

Brendan
 
Could it be that the not buying outright of a home might be part of the Goverment's idea when hatching this whole thing? Neither are they telling us what their own contribution will be.
 
It would appear so. An alternative to this would be to remove the need for the employer to make any contribution and just leave it to the employee. Or give a tax credit to the employer equivalent to any contributions they make.
 
I'm not sure it will be that significant for deposit saving...

It will affect nearly everyone, so it should just reduce demand...

Over the next 5 years it will 'cost' a determined deposit saver .75% of 2022 salary.

I.e.

It doesn't start till 2022 iirc.

It starts at 1.5% for first 3 years and you can opt out after 6m.

"initial minimum contribution rate (for employees and employers) of 1.5% for three years, which will increase by 1.5 percentage points every 3 years thereafter to a maximum of 6% at the beginning of year 10."
 
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noproblem said:
Could it be that the not buying outright of a home might be part of the Goverment's idea when hatching this whole thing? Neither are they telling us what their own contribution will be.
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The govt don't want to house people so I can't see them not wanting people to look after their own housing needs.
 
Regina Doherty was on Morning Ireland just now.

19 issues were decided at cabinet yesterday.

Decisions were deferred on 5 issues

These areas are related to the design of:
  • the State financial incentive;
  • the scope and role of the Central Processing Authority;
  • the nature and functions of the Registered Providers;
  • the investment framework and funds to be offered by Registered Providers, including, the design of the default fund, and also the pay-out phase; and
  • the phasing of implementation
 
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Hi SPC

I am thinking long-term. After 10 years, people will be contributing 12% of their income between their own and their employer's contribution.

That is huge.

Clearly it will have no impact for the next two years before it's introduced.

If I understand it correctly, they won't get tax relief as such. The government will top it up.

So if you are a single person earning €40,000 a year at present, your available income will be €31,637

You will be forced to contribute 6% or €2,400 which will reduce your available income will reduce to €29,327

That is a very significant reduction.

Your fund will be worth €5,600 but you won't be able to touch it until you retire.

Brendan
 
it appears to be a huge success in the UK since it was itroduced there a few years back, however, concerns surround whether peple are paying enough into the scheme and there is no provision for the self employed.

Watchdog hails success of auto-enrolment pensions

Ten million more people now saving with big rises in private sector staff, the young and ethnic minorities
www.theguardian.com
 
If it applies to many, many workers, and overall disposable income falls, then house prices will have to fall also, to meet the new, lower borrowing power.

The costs of building houses are already way too high and should fall anyways.
 
Saavy99 said:
it appears to be a huge success in the UK since it was itroduced there a few years back, however, concerns surround whether peple are paying enough into the scheme and there is no provision for the self employed.
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Depends on how you define 'success'. From the Pensions Regulator perspective it might be, way too early\insufficient data to say that about the people who were auto enrolled.
 
I wonder will it displace existing pension schemes?

If they are high cost schemes / providers, I hope so.

Good to see a max AMC of 0.50%.

Hopefully that will drive down AMCs across the board.

Any chance we will get towards Vanguard-style AMCs of 0.25%?


No mention of cont fees?
 
So if you already are on a pension scheme paying 5% in, and your employers doesn't provide anything, can you switch to this new set-up? You would gain from the employer (and possibly state contribution which is still TBC). This seems like a bit of a mess and hassle to close/leave one and switch.
 
Hi girl

That is a very interesting question. Employers in the auto-enrolment scheme will be obliged to contribute 6% up to €75,000 salary.

But what if they already have a scheme contributing less than 6% or nothing?

At this stage, the overall design has been worked out, but the legislation which would cover such detail is a long way off.

Brendan
 
Colm Fagan said:
I nearly wept this morning, hearing Regina Doherty on RTE with Rachel English,
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Hi Colm

When I heard that it was coming up I sent in a question about how people could be able to afford houses.

Oddly enough, English asked her about people having difficulty paying their rent after they "lose" 6% of their gross income out of their net income.

But I don't think you or I need to weep.

They will set up the scheme. I will continue to push for allowing people access their pension fund to buy a house. This change might not come until after the scheme is set up, but I think it will dawn on them eventually. It might take a change of Minister.

Likewise your investment approach can be set up afterwards. While I agree it would be much better to set it up now and have only one provider, if there is more than one provider, couldn't one of them offer this as an option?

Brendan
 
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