In March 2010, the Government published the National Pensions Framework, which will overhaul the current pensions’ regime.  Change is necessary in light of scheme funding difficulties, our ageing population, reducing workforce, and the need to increase pension coverage.  Significant areas of reform are:

• State Pension and retirement ages
  The Government aims to maintain the level of State pension at 35% of average weekly earnings. The State pension age will increase to 66 in 2014, 67 in 2021 and 68 in 2028.
• Auto-enrolment scheme
  From 2014, an auto-enrolment pension scheme will apply to employees aged 22 or over unless they are already a member of either a defined benefit (DB) scheme or a defined contribution (DC) scheme with employee and employer contribution rates equal to or greater than the auto-enrolment scheme.

  The scheme is described as “soft mandatory” as employees will be enrolled but may opt out, following which they will automatically be re-enrolled every two years.

  Under the scheme, employees are required to contribute 4% of salary, supplemented by a State contribution of 2% and a matching employer contribution of 2%, making a total contribution of 8%.

• Tax relief
  Tax relief on contributions is currently either 20% or 41%, depending on the earnings of the employee.  These rates of relief will be replaced by a State contribution equivalent to 33% tax relief rate.
• Approved Retirement Funds
  Access to ARFs will be extended to DC scheme members for all of the members’ funds and not just AVCs.  However, the minimum annual income requirement may increase from €12,700 to €18,000.
• DB scheme restructuring
  Cognisant of scheme funding difficulties, the Framework details methods by which ailing schemes could be restructured by, for example, providing for fixed contribution rates for members and employers with benefits being flexible in the event of investment losses.

  Certain reforms are to be welcomed but there are concerns about some aspects:

• It is questionable whether those at whom the new system is aimed (low to middle income earners) will be able to afford to make contributions;
• The State will not guarantee investment returns.  This may disincentivise those who can afford to make contributions, given the recent underperformance of pension funds; and
• The tax changes may have a negative effect on the level of retirement provision and AVCs made by higher earners.