Ireland Pensions Update
Pensions Update November 2024
Auto-enrolment (AE)
The Automatic Enrolment Retirement Savings System Act, 2024 was signed into law on 9 July 2024.
The Auto Enrolment (AE) retirement savings scheme will come into effect from 30 September 2025 and has been named “My Future Fund”.
For further information on auto-enrolment, click here
What should employers do now?
Now that AE has been given a definitive timeline, planning and preparations should be implemented as soon as possible. Employers will need to understand what AE will 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. Employers should also prioritise engagement with employees.
What does this mean for trustees?
Trustees will need to communicate with the sponsoring employer to request information about whether the employer’s review and decisions will likely impact the scheme.
Mercer can help employers to understand the implications of AE on their business with a checklist of items 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 to address the increasing longevity that results in more people availing of State pensions for longer.
The measures include:
- State Pension age to remain at 66
- A 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 the employee in return for a higher State Pension (subject to maximum limits). The initial group of individuals eligible to delay their State Pension are those who turn 66 starting in January 2024. The first instalment of the increased State Pension amount will be paid in January 2025, assuming that an individual opts to claim their State Pension at the age of 67 instead.
- 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 the State Pension system to be addressed through a gradual, incremental increase in social insurance rates. The Government plans 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 began 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 Bill has been included in the legislation for priority publication in the Autumn Session of 2024. The proposal removes any mandatory retirement age 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 the State Pension. While the Heads of Bill state 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 will undoubtedly become more significant issues for employers. Once the Bill is published, employers should consult with the trustees of their pension scheme to assess whether flexible options will impact the design of the retirement and death benefits being provided and whether amendments to the scheme’s rules 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.
What should trustees do now?
Trustees do not need to take immediate action but should be aware of the scheme rules regarding working beyond normal retirement age.
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. Changes to the SFT were announced in September 2024 following the publication of an independent review of the SFT and these changes were included in the Finance Act 2024.
For further information on the changes to the SFT please refer to the Standard Fund Threshold.
What should employers do now?
Employers should review whether their employees may be affected by this change and what steps must to be considered. For example, an option may be to permit the employees previously impacted by SFT limits to rejoin the company pension plan.
Mercer can support employers in understanding the implications of the changes to SFT. Please contact us for further information.
What should trustees do now?
Trustees do not need to take immediate action but should be aware of the scheme regarding eligibility provisions.
The Annual Report and Accounts for 2023 were recently published by the Pensions Authority (“the Authority”). The Authority noted that as the number of pension schemes continues to reduce, it expects to have more opportunities for dialogue with trustees in the future. The Authority also noted that it expects to publish in 2025, an overview of the findings from the recently introduced supervisory review process, along with a cross -section of its own risk assessments.
What should trustees do now?
Trustees should keep an eye out for publications from the Authority in 2025. Trustees should be aware of the possibility of engagement with the Authority and prepare for this engagement.
Mercer can assist trustees in relation to the new regulatory supervision. Please contact us for further information.
Legislation
Finance Act 2024
The Finance Act 2024 contained several measures including the following:
- The rate of weekly State Pension (Contributory) is to increase in January by €12 to €289.30 (€15,043.60 per year). The increase mirrors the previous 2 years' increases. The increase will once again affect all ‘integrated’ pension schemes which calculate benefits and/or contributions by reference to the State Pension.
- There were changes to the inheritance tax thresholds for the first time since 2019. The group A threshold was increased from €335,000 to €400,000; the Group B threshold was increased to €40,000 and the Group C threshold was increased to €20,000. These changes apply to gift and inheritances taken on or after 2 October 2024
- For workers, there were some changes to USC rates and tax bands
- The Standard Rate Cut-Off Point (the point at which employees pay the top rate of tax) will increase by €2,000 to €44,000 with similar increases for married couples and civil partners
- The main tax credits (Personal, Employee and Earned Income Credits) will increase by €125
- The 2% USC band ceiling was increased to €27,382, and the USC rate was reduced for incomes between €27,832 and €70,044 from 4% to 3%.
- The annual limit for the Small Benefit Exemption will increase from €1,000 to €1,500 where five non-cash benefits can be granted by an employer in a single year under this exemption.
- The minimum wage increased by 0.80c bringing it to €13.50 an hour.
Digital Operational Resilience Act (DORA)
DORA was adopted by the European Parliament and is 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.
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 continously 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.
The Pensions Authority has noted that “Trustees will bear ultimate responsibility for ensuring their schemes’ compliance with the requirements, irrespective of any outsourcing arrangements in place.” The Pensions Authority also noted that “Almost every Irish pension scheme outsources its administration, and trustees must ensure that their administrator’s systems are reliable, efficient and robust, and provided them with all the information they need to meet their management and governance obligations.”
What should trustees do now?
Trustees should engage with their advisors and put in place a plan for meeting these DORA requirements by 17 January 2025. Trustees should ensure that they have completed training in relation to their DORA obligations, that their necessary policies are adopted, that the service providers to whom DORA relates have been identified and that any contract provisions relating to DORA have been agreed. Trustees will also need to ensure measures have been put in place to implement and maintain digital operational resilience testing and incident reporting.
Mercer can support trustees in implementing a plan for DORA compliance. Please contact us for further information.
IORP II
Governance
As 2024 comes to a close, trustees should consider preparing their 2024 annual compliance statement in advance of the 31st January 2025 deadline date and addressing any outstanding required activity from 2024. The trustees' business plan and compliance checklist for 2024 will aid in conducting this review.
In addition, Q4 is a great time for trustees to agree on their 2025 business plan. Business plans provide a valuable framework for trustees to proactively strategise and establish a roadmap for necessary actions within a specified timeframe.
The code of practice requires trustees to appoint a scheme secretary. Appointing a scheme secretary to prepare a business plan, run meetings, manage stakeholders and trustee actions as well as ensuring governance obligations are being met can greatly assist trustees in keeping on top of their governance requirements and leave the trustees to focus on the strategic items.
Mercer can support trustees with their scheme secretarial services. For further information on Mercer’s secretarial scheme service see Mercer’s Scheme Secretarial Service
Please contact us for further information.