Originally published February 2010
Introduction to Pensions
This guide provides a brief overview of the legislation and related rules and regulations which govern the operation of pensions in Ireland.
A pension scheme is an arrangement that provides for payments to be made to an individual on retirement or to his or her dependants in the event of death.
For further information on any of the topics covered, please contact the LK Shields Pensions Group.
Pensions Provision in Ireland
Ireland has a three pillar pension system. First, the Irish Government provides a basic old age retirement pension through the State social welfare system. This is paid at a rate of €230.30 per week for a fully qualified person for 2010. Additional payments may arise for a qualified dependant. Secondly, individuals can choose to make supplementary private provision by saving in a formal tax approved pension arrangement. Thirdly, other savings top up the foregoing.
Private pension provision is entirely voluntary in Ireland. Statutory plans are set up by legislation and provide benefits to public sector employees and employees of semi-state bodies.
Many employers establish arrangements known as occupational pension schemes for their workforce (i.e. employer and employee sponsored schemes). These are mainly written under trust and managed by trustees. The trustees hold the assets separately and invest the assets for the benefit of the scheme members.
Employers are not obliged to set up a company pension scheme. However, employers must either offer their employees access to an occupational pension scheme or provide access to at least one Standard Personal Retirement Savings Account (PRSA). If the employer sponsors a pension scheme it will design the benefit structure and deal with who is entitled to join the scheme, as well as conferring on it certain powers and discretions such as the power, with trustee consent, to amend the scheme and the discretion to provide special benefits. These are all bespoke terms. There are, however, statutory obligations which oblige the employer to pay contributions within certain time frames and provide members with details of contributions withheld from pay and paid to the scheme trustees. Other statutory obligations require members to be provided with a summary of key information in relation to the pension scheme.
The full extent of employer obligations in relation to pension schemes is outside the scope of this guide. However, suffice to say that an employer establishing such a scheme should obtain suitable advice in advance to ensure it establishes an arrangement which is suitable to its circumstances and that it is fully aware of its obligations in relation to the scheme.
It is usual practice for employers to provide some type of death-in-service arrangement.
Types of Benefits
Benefits provided are typically defined benefit or defined contribution. A defined benefit arrangement is where the member receives a pension based on their final salary at the date of leaving service or retirement. (Defined benefit arrangements are subject to triennial actuarial valuations and the scheme must meet the required funding standard.) A defined contribution arrangement is where the benefits arising depend on the value of the investments available at time of draw down of benefits.
Some employers provide alternative design structures including cash balance plans or hybrid arrangements.
Alternatively, a contractual arrangement known as a Personal Retirement Savings Account (PRSA) or Retirement Annuity Contract (RAC) can be taken out. PRSAs are taken out with a PRSA provider, which may be an insurance company or other regulated investment provider. Individuals may take out PRSAs personally or in conjunction...