Government draft proposals on Automatic Enrolment launched

I disagree that €1 for €3 equals 33% relief

Consider per €100 one can only contribute €6

And government contributes €2

That gives up to 8%

Then employer matches the 6%

So 14% of pay can be saved

By the way I don't see anywhere it says the higher rate relief will be reduced for those high earners who don't join.
 
These proposals are a disgrace. Prudent individuals are being thrown to the wolves with a view to spoon feeding people who couldn’t be bothered to provide for their retirement.
 
Gordon Gekko said:
These proposals are a disgrace. Prudent individuals are being thrown to the wolves with a view to spoon feeding people who couldn’t be bothered to provide for their retirement.
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This is just the introduction of the common European three pillar frame work. It’s purpose is to require people to provide for their retirement even if they would prefer not to. It in fact safeguards your pension pot by ensuring everyone has a pot and reduces the political will in the future to take from your pot and give to those without a pot as the demographics change. It is anything but disgraceful. Ensure the country can finance its retirement is a social issue and needs to be addressed as such.
 
Brendan Burgess said:
They won't be able to have it at 25% for the auto enrolled and 40% for others.

Brendan
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With the public service pension levy becoming permanent next year and with the possibility of tax relief being reduced to 25%, this appears to be a real live case of the turkeys voting for Christmas.

Doesn't surprise me. I spoke to people who were at consultation forums about this and they said those in charge hadn't a clue what they were talking about and had no clue that some of the changes would have an impact on them personally.

Have printed off the proposal to have a proper read. But from what was outlined before, if you are a member of this, you can only access the fund at the time you receive the State pension, which in my case would be 68. As this will probably be moved out to 70, I wouldn't fancy not having an option to stop working before then.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
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.
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There is no obligation at the moment to run a pension scheme for employees; just to offer a facility to make personal contributions through a PRSA. Companies offer pension schemes because they want to offer benefits to their employees. I can't see how that will change if the govt offer an auto enrollment scheme.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
But will we not all end up in this scheme at some point? If you leave an employer with a private scheme will you end up in this one?

My biggest gripe besides the potential loss of tax relief for higher earners.... will not be able to access your own contributions until your eligibility for the state pension!!... that’s 68 now... after 2035.... who knows... I feel this is a bad change for us lucky to have a private pension with an employer.
 
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To add.. most companies have a retirement age of 65... blowing in the wind until 70 or above to access all your pension???
 
Some details of the UK scheme:

All employers must provide a workplace pension scheme. This is called ‘automatic enrolment’.

Your employer must automatically enrol you into a pension scheme and make contributions to your pension if all of the following apply:



What you, your employer and the government pay
The amount you and your employer pay towards the pension depends on:

  • what type of workplace pension scheme you’re in
  • whether you’ve been automatically enrolled in a workplace pension or you’ve joined one voluntarily (‘opted in’)
Example

You’re in a defined contribution pension scheme. Each payday:

  • you put in £40
  • your employer puts in £30
  • you get £10 tax relief
A total of £80 goes into your pension.



Workplace pension contributions
The minimum your employer pays + You pay = Total minimum contribution
Now 2% + 3% = 5%
From April 2019 3% + 5% = 8%
These amounts could be higher for you or your employer because of your pension scheme rules. They’re higher for most defined benefit pension schemes.
 
UK default pension scheme is known as NEST

https://www.nestpensions.org.uk/schemeweb/nest.html

NEST is the National Employment Savings Trust. It’s a pension scheme set up by the Government, but run independently from it. Unlike some schemes, NEST has some restrictions imposed upon it.

The National Employment Savings Trust (NEST) was set up by Government as one option for employers to use, in order to comply with automatic enrolment. Although it was set up by the Government, NEST is run completely independently from it.


NEST fees

NEST is a great value pension scheme.

It’s completely free for employers to use, with no charges to set up NEST or for ongoing administration.

It’s also free for professionals to provide a range of services to support employers with NEST through NEST Connect.

And it’s great value for members, with one simple charging structure for everyone. And we don’t charge for transferring pots into or out of NEST. Because we’re run as a trust we don’t have to make profits for shareholders. This means that we charge just enough to cover our running costs.

We have the same low charges for all members. This stays the same whether a member is contributing or not, whatever fund they’re contributing to, and no matter how much is in their retirement pot.

These charges are made up of two parts:

  • a contribution charge of 1.8 per cent on each new contribution into a member’s retirement pot
  • an annual management charge (AMC) of 0.3 per cent on the total value of a member’s fund each year
 
Gordon Gekko said:
These proposals are a disgrace. Prudent individuals are being thrown to the wolves with a view to spoon feeding people who couldn’t be bothered to provide for their retirement.
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Hi Gordon and everyone else.

This is a consultation process. They have put up what they are calling a "straw man" and it is up to us to feedback what we think of it.

Brendan
 
This is the note I sent around to the media yesterday:

Initial comments by Brendan Burgess on Government’s Strawman Pension Proposals



This proposal must be changed to allow savers withdraw their funds to buy their first home



1) The absolute priority for a young person is to save up the deposit to buy a house

2) One should not contribute to a pension fund until one has bought a house

3) So I am against mandatory enrolment under the current regime – unless the saver is allowed to withdraw their funds to buy their first home

The New Zealand auto enrolment system allows this

A saver can withdraw the full value of their fund – their contributions, their employer’s contributions and the tax credits to buy their first home.

http://www.kiwisaver.govt.nz/new/benefits/home-withdrawl/



If the current proposals are not amended to allow for this, then I would be opposed to them

· Buying a house is a higher priority

· Tax relief of 25% makes no sense, when the pension may well be taxed at 40% on drawdown


Alternatives to the Kiwi System – The member could borrow the deposit from the pension account

1) Johnny contributes to a pension fund and gets the normal tax relief on his contributions

2) He does not save for a deposit separately.

3) When he is ready to buy a house, the gets a mortgage of €300k from the bank and a €100k loan from his own pension fund.

4) The pension fund loan is a formal second mortgage.

a. Interest is charged at 2% but it would be rolled up rather than paid

b. When the house is sold, the mortgage would have to be discharged.

5) If the house is not sold, on retirement, the rolled up pension loan would be deducted from his tax-free lump sum
 
Hi everyone,

I am still trying to get my head around these proposals and have some very basic questions.

1. Will 6pc of your gross income be the maximum you can contribute? In other words, do you need to get a private pension as well if you want a really good retirement fund?

2. What if I have an existing pension giving me 40pc tax relief? Can I keep that going as if nothing has happened? If so, why would anyone paying the top rate of tax (which as we all know kicks in very early) even consider the State option?

3. How exactly can we access our State pension pots at retirement age? For example, if I amass a fund of 500,000, how much of a lump sum do I receive and how much can I then expect per year?

Sorry if these queries make me sound a bit ignorant, but I suspect I am not the only person who sometimes needs things spelled out on a very simple level.

Thanks,
Maybrick
 
Hi Maybrick

They are only proposals at this stage.

None of that has been worked out as far as I know.

I might compile a FAQ based on these questions and send it to the Department for answers.

Brendan
 
The proposal needs a lot of work.

There are a lot companies out there that offer pension contributions to their employees above what the Government are proposing. While that won't change for exiting members, are companies now going to decide that's all they need to offer to new entrants? At the moment, it is a benefit for employees but like when they started BIK on health insurance, lots of companies stopped covering it or reduced the cover. So private sector pension cover in the long term could take a hit.

They only mention a maximum management charge of 0.5%. What about other charges? The administration around a scheme like this is huge.

The risk profile of the funds on offer will be low, moderate and medium. A medium risk fund to me which is the riskiest on offer would have an equity component of around the 50% mark. That is not going to generate the long term returns that someone in their 20's or 30's should be looking at.

Obvious questions about happens with current tax relief. If that goes from 40% to 25%, people will be looking at pension contributions very closely.

I think Brendan's point about access for first home or being able to borrow from the fund is very valid.
 
Thanks Brendan, that would be much appreciated.

From my point of view, I am 42 and never started a pension because I prioritised buying a house and paying lump sums off the mortgage. Now the house is almost paid for and I am thinking about pensions seriously for the first time. Being a naturally lazy person, I am attracted by the idea of a State auto-enrolled scheme because it sounds like much less hassle than organising my own private one. I also feel that if hundreds of thousands of us are in the same system, nothing too bad can happen because the Government has to protect itself politically. On the other hand, if PRSAs offering 40pc tax relief will still be available after 2022 then do I really have any excuse for not starting one of those as soon as possible?

Bottom line - even for a 'straw man', these proposals are disappointingly vague and we need more clarity as soon as possible.
 
Maybrick said:
Bottom line - even for a 'straw man', these proposals are disappointingly vague and we need more clarity as soon as possible.
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This is not a finished product. It is rather a consultative process.

You can link to the process here & make a submission if you wish.
 
Maybrick said:
Being a naturally lazy person, I am attracted by the idea of a State auto-enrolled scheme because it sounds like much less hassle than organising my own private one.
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Hi Maybrick

If you are earning enough to get 40% tax relief you should start stuffing a pension now.
I suspect that the 40% relief might not be around for too much longer.

So what if they introduce a system in 2022 and phase it in over 6 years? You will have that on top of your independent pension.

Brendan
 
Sunny said:
They only mention a maximum management charge of 0.5%. What about other charges? The administration around a scheme like this is huge.
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I think it is 0.5% all in. Which brings me to my main point. What is this 4 Registered Providers all about? This should be State owned from beginning to end. They can outsource the admin and investment management to whoever they like or do it in house ala NTMA. Likelihood is they would outsource to the most competitive tender on a cyclic basis.

Charging for administration in this context would be a fetish. At point of delivery the administration and investment management should be "free" as are many State services such as payment of social welfare or policing or education etc. This of course implies a hidden subsidy and maybe in the overall fiscal context the tax incentive would need to be reduced. Perhaps some market research as to which is more attractive; free delivery of services or the equivalent in explicit tax incentives.

Also there should be no statutory cap on the fees. The service should cost what it costs. Pay peanuts you get orang utans. The reason for the obsession with capped charges is the history of rip off distribution and other costs in the industry. This should not arise in a State run monopoly.

Which gets me back to what is the purpose of these 4 providers which the punter will have to choose from? How will s/he make that choice? Investment prowess? Admin services? Any differentiation will ex ante be illusory and will only give rise to wasteful marketing costs. Will it involve professional financial advisory costs?

Of course, one big apparent advantage to the State is that when there are market setbacks it can blame the provider, but that is a cop out.

And finally, and not least, a 100% State architecture could facilitate Colm Fagan's Holy Grail of generation smoothing of investment risk.

Sorry, one more thing, the State should provide longevity insurance for the benefits in payment.
 
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You are right, of course. I only mention it because I am self-employed and will have to do all the research, paperwork, management etc myself - which is why the idea of a State auto-enrolled system is attractive in some ways. Anyway, that's another day's work!
 
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