Government draft proposals on Automatic Enrolment launched

Brendan Burgess

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Will there be any State incentives?
Yes, the State will provide an incentive to save. The level of this incentive and how
it might be paid will be finalised after the consultation process. At the moment,
we suggest the State contributes €1 for every €3 saved by the member.
 
Can employees opt out?
Yes, employees will be free to opt out of the system at the end of a minimum
membership period (during months seven and eight of membership).
Employees can’t opt-out after this period, but they may be able to suspend or
temporarily stop their payment of contributions. This will be decided at a later stage.
 
Will this become what we now have, ie, State Contributory Pension? Ok, just spotted that it's not.
Just an observation though, seems a bit silly to allow people opt out as workers on small salaries might decide they have no option but to stop paying after the compulsory time is up unless there's a very clear and attractive incentive on offer.
 
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As somebody paying the higher rate of tax, does this mean:

I now will pay 27% (52% - 25%) tax on my contributions to my pension
When I retire, I will pay income tax on the pension I draw.

?
 
animaal said:
As somebody paying the higher rate of tax, does this mean:

I now will pay 27% (52% - 25%) tax on my contributions to my pension
When I retire, I will pay income tax on the pension I draw.

?
Click to expand...

Hope not, otherwise its effectively reducing the 40% tax relief on pensions for workers on the higher rate, reducing their incentive to contribute to a pension.
 
This is not clear from the proposal, but I imagine that the government is planning to standardise all pension tax relief at 25%.

They won't be able to have it at 25% for the auto enrolled and 40% for others.

Brendan
 
Previously when it was seen as being a quid pro quo that tax relief for pensions would be reduced. The rationale would be the money they'd take from people getting the 40% relief would allow the extra funding of new entrants paying lower taxes.

On top of this we recently had the Minister of Finance talking about how generous our tax relief for pensions happens to be.

Government schemes to assist lower earners by punishing higher earners risk ending up reducing pensions for people who could have funded a workable final fund, and disappointing lower earners by giving them a final fund that'll provide a small to negligible pension.

The underlying problem the government is trying to solve is they expect they can't fund PRSI pensions in a couple decades. So the unspoken goal of the universal pension scheme is to allow the government to pay out a lower PRSI pension.
 
If I understand the implications, it will likely have no effect on Defined Benefit pensions (e.g. public sector pensions), but will hit higher-rate taxpayers in Defined Contribution schemes.

The Society of Actuaries in Ireland produced a paper examining what would happen if tax relief was reduced to the standard rate.

https://web.actuaries.ie/sites/defa... Pension Provision and supplementary note.pdf

What's proposed isn't quite as low as the standard rate, but it's not far from it. The paper shows contributions from somebody on €50k having an effective net rate of tax relief of 11% under such a regime.

I'm not sure it's worth putting money beyond reach (but not beyond the government's reach!) for a long period for this level of tax relief.
 
Maybe I am misunderstanding, but would €1 more added to the pot by the State per €3 Gross contributed by the member not amount to a 33.3% 'relief' on top of marginal tax rate relief?
 
Mainframe said:
Maybe I am misunderstanding, but would €1 more added to the pot by the State per €3 Gross contributed by the member not amount to a 33.3% 'relief' on top of marginal tax rate relief?
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I don't think it's on top of. I presume it's instead of. But I could be wrong.

If it's on top of...

I contribute €100
I defer tax at 40% if I am a top rate tax payer
I also get 33.33% top up.

That is 73.33%

Which is ridiculously retrogressive taxation.

Brendan
 
RMGC11: That's how I read it.

It's saying that with current tax rates, if reliefs were lowered to the standard (20%) rate, the tax on the way in *and on the way out* mean there is little benefit for such an individual.

However, that's if tax relief was reduced to 20%, which isn't quite what's being proposed. They're proposing a reduction to 25%.

I would add though, that with a pension, the money is out of your control. You can't get at it, but the state can - in the form of pension levies. There would need to be significant incentives for me to lock away my funds in that manner.
 
Will companies begin to close their pension schemes to new entrants if this goes live? Why manage a private scheme if the government will run one that you can join. All the employer does is hand over the 6 %, done and dusted.
 
So if you are already in a pension scheme where you are providing at the max contribution would the employer now be obliged to provide 1% of that contribution or would you have to buy out of your existing fund and take up one of the provided ones to avail of the employer contribution?
Also will the government €1 for every €3 employee contribution restricted to only these new funds?
 
Clamball said:
Will companies begin to close their pension schemes to new entrants if this goes live? Why manage a private scheme if the government will run one that you can join. All the employer does is hand over the 6 %, done and dusted.
Click to expand...
I'm guessing that all these details will be worked out in the coming months. It's going to be an SSIA-type arrangement - the Government puts the rules in place, individual institutions sign up to be part of it.
 
Where will the money sit? State fenced fund or is it a case of privately run funds?

If a state run, what’s stopping it being raided?

If private, will the status quo of high management fees still exist...pension companies must be rubbing their hands at guaranteed business?
 
Not that anything stopped them from raiding privately run funds before..

When would the current relief rate be changed?
 
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