Written answers

Wednesday, 31 March 2010

Department of Social and Family Affairs

Pension Provisions

8:00 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 177: To ask the Minister for Social and Family Affairs if new legislation will be required to implement the national pensions framework; when he will introduce this legislation; and if he will make a statement on the matter. [14118/10]

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 178: To ask the Minister for Social and Family Affairs if he will consider, within the context of the national pensions framework, measures to ensure that people saving for their retirement do not pay very high management or other fees to private sector fund managers for managing their pension fund, particularly when the fund is largely or completely invested in passive or cash funds; and if he will make a statement on the matter. [14121/10]

Photo of Éamon Ó CuívÉamon Ó Cuív (Galway West, Fianna Fail)
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I propose to take Questions Nos. 177 and 178together.

The recently published National Pensions Framework is the Government's plan for future pension reform. It encompasses all aspects of pensions, from social welfare to private occupational pensions and public sector pension reform. Development of the framework was informed by the range of views raised during the comprehensive consultation process which followed publication of the Green Paper on Pensions. The aim of the framework is to deliver security, equity, choice and clarity for the individual, the employer and the State. It also aims to increase pension coverage, particularly among low to middle income groups and to ensure that state support for pensions is equitable and sustainable.

At present only 50% of workers have a private pension, with low levels of coverage among moderate to middle incomes a particular concern. While the State Pension is expected to provide sufficient retirement income for the lowest paid workers, most people will have a significant income gap if they do not have some extra private pension provision. Inertia and procrastination are among the main reasons for not taking out a pension.

A key element of the framework is the introduction of a new auto-enrolment system which provides a way of overcoming this problem. Employees earning above a certain income threshold will be automatically enrolled into this new scheme, with the employee, their employer and the State all making contributions. Those employees already in a more favourable occupational pension scheme will not be enrolled.

For those who are included in the scheme, contributions will only be paid on earnings above a certain minimum level and below a certain maximum. The level of these thresholds will be decided closer to the implementation date and they will be set in such a way as to ensure that the scheme focuses on those on low and middle incomes.

Within these thresholds, the employee will pay 4% of their salary, with this being topped up by 2% from their employer and a further 2% by the State. The State's contribution will therefore be equivalent to 33% tax relief. The same 33% State contribution will apply to existing occupational and personal pension schemes and will replace the current system of tax relief at the standard and higher rates. This will represent a major increase in State support for the pensions of lower paid workers. Employees will be able to opt out of the scheme after a period of 3 months. While they will be automatically re-enrolled every 2 years, they can opt out again if they wish.

The limited number and types of funds available under the scheme will be provided by the private sector through a competitive process run by the State. All participating funds will be required to have life-styling built in. Employees will have the option of choosing between these approved funds or providers, otherwise, they will be enrolled into one of the low risk default options. Charges will be kept to a minimum as marketing expenses and investment advice are minimised.

In relation to pension charges more generally, the National Pensions Framework commits the Government to introduce regulations to increase the transparency of such charges. This should make it easier for people to compare and contrast the various options available to them in choosing a pension product.

A range of legislation will be required in order to implement the various elements of the National Pensions Framework. An implementation group is being established to develop that legislation, as well as the required regulatory and administrative infrastructure. We expect the implementation phase to take three to five years to complete.

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