Rule of Thumb for enrolling in My Future Fund

[Itchy]

I think this Q & A is simplifying the answer to employees. It assumes that if there is already a scheme in place then naturally the employer will be exempt from its AE responsibilities and will surely have availed of that exemption. Ergo the punter is "ineligible" for AE because their employer was exempt from facilitating AE. They would be loathe to envisage employers having to run two schemes, MFF for their standard rate taxpayers and a conventional scheme for their 40% taxpayers.
We saw this mindset in an answer from the Minister to a PQ. The PQ asked to confirm whether an employee on the 40% tax rate would be better off than in the MFF. The Reply argued that the situation does not arise as clearly if the employer has a scheme already then the employee would not be eligible for MFF

My read of it was that the employer essentially had the power to determine their involvement in AE.

For firms with a scheme in place, firms would choose to "stop" contributing to the main scheme for SR employees who wanted to enroll in AE. Equally, firms usually offer a "matching" contribution. Employees who stop their contributions with the intention of forcing AE, will push employers to continue making a contribution (breaking the match), thus avoiding AE.

 

[Colm Fagan]

I can't envisage a scenario whereby an employer makes a pension contribution on behalf of an employee and it is not put through payroll (i.e. reported to Revenue)?

Hi @Itchy Shows my ignorance in such matters. I recognised of course that employer contributions are reported to Revenue but I didn’t think that was the same as ‘put through payroll’.

 

[Duke of Marmalade]

@Itchy @Colm Fagan For my sins I have been poring through the AE Act. It does seem that for a particular employee they are either in AE or in some other pension arrangement but not in both (and of course not in neither - draw the Venn diagram).
So the first part of the following advice in OP would not seem to be valid.

Additional funding for this constituency and for all other 40% taxpayers should be through a conventional scheme

I find this really hard to understand. It effectively imprisons AE contributors in the meagre 1.25%/1.25% regime.
They can contribute to a PRSA but their employer can't add to their 1.25% contributed to AE. No wonder there is a big "avoid AE" push by advisors. Of course additional funding support by the employer could be facilitated by an increase in remuneration specifically earmarked to part fund the employee's contribution to a PRSA.

 

[Duke of Marmalade]

Below is a Parliamentary Question to the Minister and his Reply. My comments are in red
Question
Will employers be allowed to enrol higher rate taxpayers in a company pension scheme and other employees in My Future Fund?
Reply
…the preamble is a recap of how MFF works...
The difference in financial incentives between the State top-up approach and the current tax-relief system for pension contributions has been considered in depth. Whether AE or tax-relief is preferable for any given worker will in fact depend on a rounded consideration of their individual circumstances. It would be overly simplistic to suggest that My Future Fund is automatically less beneficial to those who pay tax at 40%; just as it would be overly simplistic to say that My Future Fund is automatically more beneficial to those who pay tax at 20% or those who are outside the income tax bracket altogether. the last thing DSP wants to happen is for the market to bifurcate along these simplistic lines, let's see why they think this is over simplistic
Firstly, it is important to note that anyone who would be eligible to be auto-enrolled when the system goes live is not participating in any pension arrangement through their payroll. this does seem to be the case. If you are eligible to be auto-enrolled it means you are not contributing and your employer is not contributing on your behalf to any other arrangement. So it seems that if you are eligible for AE then that is your lot, 1/25%/1.25% for 3 years etc. Accordingly, they don't have access to any incentive, regardless of its type or value. I don't get that. They have access to a PRSA for example or even an OPS but have decided not to avail of it Secondly, it is important to note that the State top-up approach is far simpler for people to understand as it operates similarly to the SSIA approach adopted The origins of this folly. It is clear from internal documents obtained under FOI that it was intended to be like the SSIA with benefits non taxable as they were accrued from after tax income. in the past whereas tax relief is difficult for many to grasp. "far simpler"? as the ESRI argued at JOC it doesn't matter if it is easier to understand, enrolment is mandatory. If they had given a 1 for 3 top-up for PRSAs would that have solved the problem? Nope Thirdly, the State top-up approach has the significant advantage of making the auto-enrolment system equitable across participants - the State incentivises every euro saved by exactly the same amount regardless of who saves it. Wrap the red flag round us. Higher income participants will pay 40% plus USC on the benefits. Finally, it simply isn't the case that people who receive tax relief at the higher rate would be universally well yeah, nothing is ever universal but a jolly good rule of thumb that 2 cherries are better than 1 better off in an occupational pension scheme rather than in AE as a range of other factors other than tax relief such as contribution rates this is silly, we presume when comparing two approaches we will assume they are equal in terms of contribution rates, the income base on which contributions are calculated (whether gross or base income), same thing. we should compare like for like ancillary benefits same again, administrative and investment charges, Ahh! now we are talking. The charges can make a big difference as the rule of thumb in OP implies investment returns, disingenuous. of course ex post investment returns have the capacity to dominate all else but ex ante they are irrelevant to the employer/employee decision as to which way to proceed and whether the employer is making a supporting contribution, Please. please let us compare like with like will all have a bearing on the value of a scheme to its participants. The approximately 750,000 employees who may be auto-enrolled currently have no active supplementary pension coverage facilitated by their employer. In that sense, My Future Fund will be of great benefit to a great many people.…

There is nothing in the AE legislation to either prevent or encourage employers to act in any particular way regarding their own company pension arrangements. Individual employers are best placed to determine which arrangement meets both theirs and their employees' needs. This may mean encouraging employees into their existing occupational or other supplementary pension scheme, or it may mean availing of the arrangements of 'My Future Fund', or both.