IRELAND - Implementation of the Irish government's pensions framework will require "much additional work", according to pensions experts, as there is a lot of detail still to be clarified on areas such as auto-enrolment, tax relief and the future shape of defined benefit (DB) schemes.

The government set out its plans yesterday to reform the Irish pension system, including an increase in the State retirement age to 68 by 2028, introduction of 'soft-mandatory' pension saving for employees aged over 22 and an extension in the access to Approved Retirement Funds (ARFs) for all employees who are not already members members of pension schemes. (See earlier IPE articles: Ireland follows UK path for pension reforms and Irish regulator may gain power over pension scheme investment)

However, while the proposals, developed from the initial Green Paper issued in October 2007, have been broadly welcomed by the pension industry, there are calls for more clarification and in some cases for the policies to go further.

The Irish Association of Pension Funds (IAPF) has highlighted the positive step of allowing access to ARFs from next year and the establishment of a "very practical" tracing service for deferred members.

But Jerry Moriarty, director of policy at the IAPF, said: "We have concerns about the implications of the proposals and, particularly, how they will interact with occupational schemes."

In particular, he suggested that reducing the tax relief for higher rate taxpayers from 41% to 33% "will result in an effective pay cut for many existing members, particularly if it is intended to continue to tax pensions in payment at marginal tax rates".

A statement from Mercer also warned that the decision to limit tax relief could mean individuals paying higher rate tax in retirement "will effectively be subject to double taxation when they take their pension benefits."

It argued: "This step is inconsistent with the overall aim of encouraging saving for retirement and with the rest of the framework document".

The IAPF also argued while the soft-mandatory scheme outlined in the framework would address pension coverage, "it does not necessarily address adequacy and there needs to be a real understanding of what that will deliver to participants".

"Generally, there is a lot of detail left to the implementation period and it is important that there is recognition that the level of expertise required in this area is very high," added Moriarty.

In its response to the framework document, Mercer recognised that a move preventing existing pension scheme members from participating in the new system means the government had noted previous concerns suggesting the soft-mandatory option had the potential to damage existing pension schemes.

The consulting firm acknowledged "considerable thought will need to be given to the efficient and equitable workings of the auto-enrolment plan which, with its mooted contribution rates and thresholds, should be seen as a minimum rather than a target system for accumulating retirement savings".

On the issue of DB scheme changes, Mercer argued further legislation should be introduced to allow DB schemes to adjust the scheme retirement age in line with increases in the State pension age, to help "alleviate the current funding problems".
It also argued that the government's "suggested" model for restructuring DB schemes requires urgent clarification on the status of the proposal and the timeline for its implementation.

With 80% of DB schemes currently required to submit a funding proposal to the Pensions Board either by 30 June or by the end of the year, Mercer said it would be calling on the regulator to "extend the current deadlines for submission of funding proposals to allow schemes to take account of this and other aspects of the framework".

Martin Haugh, partner with Lane, Clark & Peacock (LCP) Ireland, also added: "The proposed restructured DB pensions model will require changes in legislation, in order to implement it. Those changes in legislation must take place immediately and existing DB schemes should be given an exemption from current regulations until the new legislative framework has been put in place. Unless these provisions are made, DB pension schemes will continue to fail."

He claimed the success of the national pensions framework "will depend on how the proposals are implemented. We also recognise that it will require the support of all employers, trade unions and the pensions industry as a whole, in order to bring about a cultural shift among employees to take ownership of their retirement planning."

Trade unions, however, have been less welcoming of the proposals, with Jack O'Connor, general president of SIPTU, claiming the proposals are "no more than an elaborate piece of tokenism which does nothing for the current cohort of citizens approaching pension age".

SIPTU argued the increase in qualifying age for the basic state pension will be a burden for workers under 55 as most will retire at 65 but will not qualify for the state pension until they reach age 67. It also claimed the auto-enrolment basic contributions of 2% from employers and 2% from employees would be "totally inadequate to provide any realistic level of pension, even if it was guaranteed, which of course it would not be".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email