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 Post subject: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 1:42 pm 
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Of Systemic Importance

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Yesterday, the Dept of Welfare launched a consultation process on the introduction of auto-enrol pensions in Ireland. It's not due to commence until 2022 but here are some of the main points:

Employee to contribute 6% of their gross salary (starts at 1% in yr 1 and ramps up to 6% over 6 years)
Employer to contribute 6% each up to €75,000 gross salary (same ramping up as above)
Government will contribute €1 for every €3 contributed by employee
Automatic enrollment for any one aged 23 -60 and earning over €20k
Can apply to leave in month 8 and 9 but will automatically be enrolled again in 3 years time
This won't impact your eligibility to the State pension
Self-employed can opt in


https://www.independent.ie/business/per ... 43240.html
Quote:
It was to be introduced in two years' time, but Ms Doherty has promised it will be in place in four years' time.
Less than half of all workers have an occupational or private pension to supplement their State pension. Almost all public sector workers have an occupational pension.
However, just one-third of workers in the private sector have a personal pension. This amounts to around 900,000 workers.


A Q&A on the proposal
https://www.independent.ie/business/per ... 43254.html

Now one major question I would have is with regards to the current pension relief which is at the marginal rate of 40% for those earning over 35k. Is that about to go to be replaced with the 25% rate mentioned above? Is that the long term thinking of the Govt here?
If yes, that's going to make a lot of people think hard about putting money into pensions.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 2:10 pm 
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Also the fact they raided private DC pension funds a few years ago - this would generate a nice pot to be raided come the next crisis

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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 2:21 pm 
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NegativeEquity wrote:
Also the fact they raided private DC pension funds a few years ago - this would generate a nice pot to be raided come the next crisis

That's a real danger alright


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 3:06 pm 
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I think opt out is a better system if they do it correctly. It's madness that over half of employees have no pension beyond the state pension contributory, currently a max of 218 euro a week

It seems very generous to me:

I put in 6%;
Employer matches it so another 6% up to 75K gross;
State pays 1euro per 3.

And I save tax on my payslip of 20/25/40%, not clear which yet

I can see public servants, who already ave a State pension, wanting to also do an AVC like this to top up their retirement income


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 3:18 pm 
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What does it all do to the existing pensions market?

Quote:
The Government suggests that the maximum charges for administration and investment would be 0.5pc per annum. That's significant. Standard PRSAs (personal retirement savings accounts), which was a previous attempt to introduce a flexible pension, have charges of up to 5pc of the contributions, and 1pc per annum of the fund's value.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 3:40 pm 
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TheJackal wrote:
I think opt out is a better system if they do it correctly. It's madness that over half of employees have no pension beyond the state pension contributory, currently a max of 218 euro a week

It seems very generous to me:

I put in 6%;
Employer matches it so another 6% up to 75K gross;
State pays 1euro per 3.

And I save tax on my payslip of 20/25/40%, not clear which yet


or you possibly save 0% tax on your payslip as the states 1 euro per 3 is the new "tax relief"

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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 3:57 pm 
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Ixelles wrote:
What does it all do to the existing pensions market?

Quote:
The Government suggests that the maximum charges for administration and investment would be 0.5pc per annum. That's significant. Standard PRSAs (personal retirement savings accounts), which was a previous attempt to introduce a flexible pension, have charges of up to 5pc of the contributions, and 1pc per annum of the fund's value.


No idea. All I know is that current standard PRSAs are obscene.

Costs for a standard PRSA are legally 5% of deposits plus 1% of the fund value per year. There is also another hidden charge of they apply of approximately 1% of the fund value per year in costs, making it about 2% per year in general.

How does this affect people? Over a normal 35 year period people will lose half of their fund in costs. If someone was paying a reasonable amount into a PRSA of €10k per year it works out that they are going to pay the PRSA provider half a million in costs.

The question is are these costs reasonable? Compare these costs to a Vanugard fund. Vanguard, for those who have never heard the name, are the worlds second largest money managers. Anyone that has a DC pension that allows you to choose between multiple funds, stocks, trackers, bonds etc. this is the type of thing that Vanguard supply. They offer the type of funds that standard PRSA providers offer at a cost of about 0.05% a year with no deposit costs.

Over a normal 35 year period you would pay Vanguard 1% of the total value of your savings in costs; a standard PRSA 50%.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 7:01 pm 
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The Curious One wrote:
Costs for a standard PRSA are legally 5% of deposits plus 1% of the fund value per year. There is also another hidden charge of they apply of approximately 1% of the fund value per year in costs, making it about 2% per year in general.


They are the legal maximums. You can find a lot cheaper if you shop around and are willing to make the payments and tax returns yourself, though nothing as cheap as in the US.

This endless fiddling with levies, rules and reliefs turns people off.

We have the structures there already, we don't need a new one. Reduce the legal maximum charges on PRSAs to non-extortionate levels and auto-enrol people in them. Make the employers remit by payroll to a central clearing house. From there it can go into some sort of 'default' PRSA managed by the NTMA or redirected to a provider and plan of my choice.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Thu Aug 23, 2018 9:14 pm 
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Sounds like a Superannuation fund that been run in Australia since the 80s I think. In recent years people have been allowed draw down early without penalty for investing in property to keep the ponzi scheme pumped. No doubt such allowances will be attempted in ireland.

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 Post subject: Re: Pension Auto-enrollment
PostPosted: Fri Aug 24, 2018 8:12 am 
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catbear wrote:
Sounds like a Superannuation fund that been run in Australia since the 80s I think. In recent years people have been allowed draw down early without penalty for investing in property to keep the ponzi scheme pumped. No doubt such allowances will be attempted in ireland.


Brendan Burgess is including this in his submission of suggestions and I heard some guy from Mercer on Breakfast Business suggest similar also yesterday morning.

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 Post subject: Re: Pension Auto-enrollment
PostPosted: Fri Aug 24, 2018 8:13 am 
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NegativeEquity wrote:
TheJackal wrote:
I think opt out is a better system if they do it correctly. It's madness that over half of employees have no pension beyond the state pension contributory, currently a max of 218 euro a week

It seems very generous to me:

I put in 6%;
Employer matches it so another 6% up to 75K gross;
State pays 1euro per 3.

And I save tax on my payslip of 20/25/40%, not clear which yet


or you possibly save 0% tax on your payslip as the states 1 euro per 3 is the new "tax relief"


All indications are you will save 0% on your payslip so the 1 euro per 3 is the new "tax relief" so in effect the 40% relief is being cut

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 Post subject: Re: Pension Auto-enrollment
PostPosted: Fri Aug 24, 2018 11:23 am 
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When I started a pension the relief included PRSI and was around 50%, now it's 40%, and possibly in 5 years or so will be 25%.

Ignoring any employer contributions..

A fund of 400,000 @ 50% relief costs 200,000.
A fund of 400,000 @ 40% relief costs 240,000.
A fund of 400,000 @ 25% relief costs 300,000.

Tax relief @ 25% means you put in as little as you can, just whatever's needed to get your employer's contribution.

Since it's getting to tax return time, I'm considering maximizing pension AVCs for the remaining 5 years or so (incl. 2017), then switch to minimal contributions if they bring in this scheme.
I will not be surprised if the first impact of this news is unexpectedly large pension tax refunds for 2017.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Fri Aug 24, 2018 11:51 am 
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sorehead wrote:
When I started a pension the relief included PRSI and was around 50%, now it's 40%, and possibly in 5 years or so will be 25%.

Ignoring any employer contributions..

A fund of 400,000 @ 50% relief costs 200,000.
A fund of 400,000 @ 40% relief costs 240,000.
A fund of 400,000 @ 25% relief costs 300,000.

Tax relief @ 25% means you put in as little as you can, just whatever's needed to get your employer's contribution.

Since it's getting to tax return time, I'm considering maximizing pension AVCs for the remaining 5 years or so (incl. 2017), then switch to minimal contributions if they bring in this scheme.
I will not be surprised if the first impact of this news is unexpectedly large pension tax refunds for 2017.

That was my initial thought. It looks like the relief will go, or be reduced. So makes sense to contribute more now.


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Fri Aug 24, 2018 7:15 pm 
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Does anyone know if it’s possible to backdate tax relief on pension contributions made this year for previous years where the person didn’t use up their full allowance?
I know I can make an AVC now for 2017, but can I go back further e.g. get tax relief on contributions made on tax paid in 2016 or before?

I’d assume the answer is ‘no’ but just throwing it out there!


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 Post subject: Re: Pension Auto-enrollment
PostPosted: Sat Aug 25, 2018 9:01 pm 
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I really like the idea of matching exchequer contributions. This makes the upfront cost much more transparent than the current policy of using tax reliefs, where it is very murky who is benefiting and there tends to be very little parliamentary scrutiny.

The big issue with coverage is people in the middle of the earning distribution (30k-50k) who experience a big dip on retirement if they only have a contributory state pension which is a little less than €13k. High earners tend to be public sector, or else private sector taking advantage of generous tax reliefs.

Making someone on €20k (say part time in retail) make big pension contributions strikes me as daft. When you consider the €13k state pension they will likely end up with a pension income nearly as big as their wage during working life.


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