Back in February of this year, the Taoiseach announced a major reform of future pension provisions. He launched the five-year, ‘Roadmap for Pensions Reform’. This was intended to make sure our ageing population is taken care of into retirement, close the gap between contributory and non-contributory state pensions and make the system fairer for workers that take times out for child rearing, full time caring and periods in receipt of social welfare payments. These changes will affect any businesses that employ at least one employee and will have implications for payroll professionals. The Roadmap was divided into six strands which are detailed below.
1. Total Contributions Approach
The reform will mean that eligibility will be based on the total number of social welfare contributions worker have had over their working life rather than a national average. The value of State pension payments will be kept at 34/35% of average earnings. Future increases will be linked to inflation.
The Roadmap for Pensions Reform will introduce automatic enrolment from 2022. This is to support and encourage saving. The automatic enrolment approach means that individuals above a certain age and income threshold will be automatically enrolled in the pensions scheme but retain the right to ‘opt out’. The Department of Social Protection stated that experience of this system internationally suggests that once workers are enrolled in the system, they tend to remain there.
3. Improving Governance and Regulation
The Roadmap for Pensions Reform recognises that confidence in the pensions system has been dented in recent years by difficulties with some high-profile pension schemes that were previously viewed as secure. The government is proposing to encourage saving and support employees and employers by improving governance and regulation of these schemes. This will be achieved by implementing the relevant EU Directive; EU IORP II.
4. Measures to Support Defined Benefit Schemes
It is estimated that more than 600,000 people draw, or will draw, retirement income from defined benefit Schemes. Although these schemes are being phased out in favour of defined contribution pension schemes, in the Roadmap document, the government outlines ways in which the rights and legitimate expectations of the member will be protected.
5. Public Service Pensions Reform
The government is intending to bring in changes in order to ensure the sustainability of the pensions scheme and safeguard the delivery of promised benefits. This involves providing the option to work past the age of 65 should employees wish to do so.
6. Supporting Fuller Working Lives
This strand proposes allowing people to work beyond the normal retirement age should they wish to do so. This is done by allowing individuals to defer receipt of the State Pension on an annual basis in order to increase the rate they receive when the pension entitlement is drawn down.
To find out more about Pensions Reform, see welfare.ie.