Ireland Pensions Update 

Auto-enrolment (AE)

The Automatic Enrolment Retirement Savings System Act, 2024 was passed by both houses of the Oireachtas on 3 July 2024 and was signed into law on 9 July 2024.

There remains a significant amount of work to be done before auto-enrolment will be up and running but the Minister has stated that auto-enrolment will become “a reality in 2025”.

For further information on auto-enrolment - please visit here.

What should employers do now?

It is important for employers to prepare for what’s coming. This means understanding what AE might mean for them, including the potential operational challenges, cost implications over time and how their current pension scheme could be affected. Undertaking a high-level gap and cost analysis will provide an important indication of what employers can expect.

What does this mean for trustees?

Trustees will need to communicate with the sponsoring employer to request information as to whether there will be any likely implications and impacts on the scheme following the review and decisions undertaken by the employer.

Mercer can support employers to understand the implications of AE on their business with a checklist of items for employers to consider. Please contact us for further information.

State Pension

The Social Welfare (Miscellaneous Provisions) Act 2023 introduced reforms with effect from 1 January 2024 with a view to addressing increasing longevity that results in more people availing of State pensions for longer.

The measures include:

• State Pension age to remain at 66
• New voluntary flexible option introduced to those reaching 66 on or after 1 January 2024 allowing employees the flexibility to defer drawing down their State Pension up to age 70.  Where the State Pension is deferred, PRSI contributions are payable by the employer and employer in return for a higher State Pension (subject to maximum limits)
• From January 2025 there will be a 10-year phased removal of the Yearly Average Method, which means that all pensions will be calculated using only the Total Contributions Approach (TCA) by 2034.
• Long-term sustainability of State Pension system to be addressed through gradual, incremental increase in social insurance rates.  The Government has signed off on a plan to increase PRSI by 0.70% over five years.  Under the plan there will be incremental increases in all classes of PRSI for employers, employees and the self-employed.  This begins with a 0.1% hike in October 2024.

The Heads of Bill have been published for the Employment (Restriction of Certain Mandatory Retirement Ages) Bill 2024.  The proposal removes any mandatory retirement age that is below the State Pension Age.  If an employee provides written notice to their employer that they do not consent to the mandatory retirement age, the employer must not retire them before they qualify for State Pension. While the Heads of Bill states that “Nothing in this Act shall affect any pension scheme” it remains to be seen whether the final published Act will include this provision.

What should employers do now?

Longer working and flexible retirement may become a more significant issue for employers. Once the bill is published, employers should consult with trustees of their pension scheme to assess whether flexible options will impact on the design of the retirement and death benefits being provided and whether amendments to the rules of the scheme will be required.

Mercer can support employers to understand the implications of the State’s new flexible options and the impact on their business. Please contact us for further information.

Review of the Standard Fund Threshold (SFT) Regime

The SFT is the limit on the total capital value of tax-relieved pension benefits that an individual can draw down in his or her lifetime from all of that individual’s pension arrangements.  The SFT was introduced in December 2005 and is currently €2million (since 2014).  The Government have acknowledged that it has been ten years since the limit was reviewed. The SFT limit will be reviewed taking into consideration the impact of any change to the SFT on the overall tax expenditure associated with pension provision and its associated distribution, and the need for equity in treatment across taxpayer groups and between public and private sector workers and will take account of the Commission on Taxation’s recommendation that the SFT limit be set at “an appropriate and fair level of estimated retirement income. 

The results of the examination will be presented to the Minister for Finance by Summer 2024 for consideration.

Supreme Court Judgment – Widower’s Contributory Pension

The Government is considering legislative changes following a Supreme Court judgment that an unmarried father is entitled to a widower’s contributory pension.  The court rules in favour of an individual whose long-term partner had died.  They had three children but were not married.  The court found that the Social Welfare legislation, which limited the payment to married or civil partnership couples, was invalid and discriminatory and stated that the distinction between married and non-married parents was arbitrary and failed to hold parents equal before the law.  The decision will require the Oireachtas to being in legislation to give effect to the ruling.

While this does not relate directly to occupational pension schemes, trustees and employers should be mindful that rules in a pension scheme which provide spouse’s pensions only where the member is married could be challenged following the implementation of this legislation. 

Supervisory review process (SRP)

The Authority advised that the SRP programme will commence in 2024 focusing on master trusts and large defined contribution and defined benefit schemes.  The SRP will cover strategies, processes and reporting procedures established by trustees and the Authority will assess the scheme’s system of governances and how risks are monitored and managed.

Schemes selected or the SRP will be provided with information on the SRP process in advance and for those schemes selected for SRP in 2024, the Pensions Authority have formally notified the relevant trustee boards.

Mercer can assist trustees in relation to the new regulatory supervision. Please contact us for further information. 

Digital Operational Resilience Act (DORA)

DORA was adopted by the European Parliament and came into force on 16 January 2023. It will be directly effective from 17 January 2025. It applies to all “financial institutions,” which includes occupational pension schemes with 15 or more members.

The Pensions Authority published an information note on the Digital Operational Resilience Act (DORA) Regulation on 29 July 2024 Digital-Operational-Resilience-Act-information-note.pdf (pensionsauthority.ie)

The main requirements for trustees will include:

• Documenting and maintaining a comprehensive ICT risk management framework to include ICT business continuity plans and other policies and controls, as part of the overall risk management system.
• Identifying all sources of ICT risk and cyber threats on a continuous basis together with ongoing monitoring of the security and functioning of ICT systems relied on.
• Effective management of ICT third-party risk ensuring that key contractual provisions are in place with service providers as set out in article 30 of DORA.
• Maintaining a register of information on all contractual arrangements on the use of ICT services provided by third-party providers
• Managing and reporting major ICT related incidents to the Pensions Authority and keeping a record of significant cyber threats.
• Testing ICT systems supporting critical or important functions at least yearly.

Given the timeline involved, trustees should engage with their advisors and put in place a plan for meeting these DORA requirements by 17 January 2025.

Mercer can support trustees to implement a plan for DORA compliance. Please contact us for further information. 

Governance

After a busy start to 2024 with trustees completing the own risk assessment and critical reviews, trustees are now scheduling their actions arising out of these reviews over the next three-year cycle as well as ensuring compliance with all the other governance requirements as set out in the code of practice for trustees.

Appointing a scheme secretary to run meetings and maintain a scheme master register together with ensuring governance obligations are being met can greatly assist trustees in keeping on top of their governance requirements.  

Mercer can support trustees with their scheme secretarial services.  Please contact us for further information.