Aug 12, 2010

As with all legislation it is only when the final legislation is passed by the Oireachtas will we know the final provisions. With a National Election also due within the 5 year timeframe, proposals made now may not get implemented depending on the election results.

The key proposals in the Framework:

TAX TREATMENT OF PENSION CONTRIBUTIONS 

The Framework confirms that the rate for tax relief on pension contributions will be consolidated at a single 33% rate of relief though the timing mechanism for the delivery of this has not been decided.

ACCESS TO APPROVED RETIREMENT FUNDS (ARFs)

It is proposed that the Retirement Options will be extended to allow much broader access to Approved Retirement Funds (ARFs) for members of Defined Contribution (DC) Occupational Pension Plans from 2011. 

AUTO ENROLMENT TO PENSIONS

The Government has announced that it will require employers to deduct pension contributions through the PRSI collection system. Employees will pay 4%, the employer 2% and the Government 2% of earnings within a band which has not yet been decided.

In other words, for every two Euro that the employee invests in the pension scheme the employer and the State will invest one Euro each.

The employee will be allowed to opt out of the plan after 3 months but will be re-enrolled every two years. Members will be given the choice of a limited number of funds with the mention of lifestyle strategies and secure default options.

RETIREMENT LUMP SUMS

The Framework accepts the Commission on Taxation recommendation that lump sum payments below €200,000 will continue to remain tax-free. The tax treatment of any future Lump Sum payments above this limit would be considered further as part of the overall Framework.

STATE OLD AGE PENSION

The State Pension Age will increase to age 66 in 2014, to age 67 in 2021 and age 68 in 2028. This will begin in 2014 with the abolition of the State Pension (Transition) and the removal of the "retirement condition".

In effect, anyone who is aged 49 or younger in 2010 (i.e. born in 1961 or after) will have a State Pension at age 68.

The PRSI Contribution Qualifying Conditions are to become stricter - from 2012 the minimum contribution requirement will increase and then for new retirees from 2020 this will switch to a total contribution requirement (rather than the current minimum average).

Arrangements will also be put in place to allow people to postpone receipt of the State Pension and to make up contribution shortfalls.

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