The Irish Pensions System – What Next? Legislation update Criminal Justice Act 2010 The Irish Pensions System - What Next? By Peter Fahy
Peter Fahy examines recent developments and considers what changes a new Government may bring. During the current hiatus while the 2011 election campaign is underway, it is worth examining the events of the past eleven months, and also looking at what an incoming Fine Gael/ Labour Government may mean for the occupational pension system in Ireland.
Pension schemes have been more exposed to political scrutiny in the past couple of years than perhaps the preceding couple of decades. It used to be about what the State can do for retirement saving; now it's about what retirement saving can do for the State – and not in a good way.
It is just eleven months since the National Pensions Framework was officially launched in March 2010. The mission statement of the Framework is "we must plan now to ensure the adequacy of retirement incomes and the long term future and sustainability of our pension system."
Key proposals included
€10 billion of the National Pension Reserve Fund, which is intended to finance the future cost of public sector pensions, has been earmarked to recapitalise the banking system. The Minister for Finance has been given effective control of the remaining assets of the Fund by the Credit Institutions (Stabilisation) Act 2010. Existing deadlines for the submission of funding proposals by defined benefit schemes to meet the funding standard were suspended last October. In November, the outgoing Government committed in the National Recovery Plan (NRP) to reduce aggregate expenditure on pension tax relief by €700m (private sector) and€240m (public sector) over the period 2011 to 2014. This is to be done by abolishing employee PRSI and health levy relief on pension contributions, reducing the annual earnings cap for tax relief on contributions and reducing the standard fund threshold. In addition, the rate of income tax relief on pension contributions is to be progressively reduced to 20% by 2014. In the December 2010 Budget and subsequent Finance Act, the outgoing Government followed through on their NRP proposals, and went further, as follows: The new universal social charge and PRSI has been applied to all employee contributions, and 50% employer PRSI has been applied to employee contributions. The annual earnings limit for tax relief has been reduced from €150,000 to €115,000. The tax free lump sum on retirement has been reduced to €200,000. The standard fund threshold has been reduced to €2.3 million. Legislation to enable pension schemes invest in Irish Government backed or 'sovereign' annuities was enacted in December. However, proposed amendments to the funding standard and to the regulatory system that were to have been announced by the Pensions Board have been deferred until after the election. What has happened since?
Some of the key developments since March 2010 are as follows:
€10 billion of the National Pension Reserve Fund, which is intended to finance the future cost of public sector pensions, has been earmarked to recapitalise the banking system. The Minister for Finance has been given effective control of the remaining assets of the Fund by the Credit Institutions (Stabilisation) Act 2010. Existing deadlines for the submission of...