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Thursday, 25th April 2024 |
| New obligations for all employers |
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| Pat Surlis examines the impact the introduction of PRSAs will have on employers and advises on how to prepare for them. |
It is about to become mandatory for every employer to provide their employees with access to some form of pension provision. The Government have indicated that this deadline will be in the summer of 2003 (date yet to be confirmed).
Ireland has seen radical social and demographic changes taking place over the past few decades. These changes have created a challenge for the Government in how to finance pensions for those retiring in the future. The Government, along with most European governments will face a serious economic burden over the next 30 years. So they have introduced a number of new measures to help them meet their target of increasing overall pension coverage in Ireland from its current level of approximately 50 per cent of the working population to 70 per cent*.
For this reason the Pensions (Amendment) Act 2002 and the Finance Act 2002 brought new obligations for employers in relation to pension provisions for employees. The Government believe that people are more likely to save for their own retirement if they have;
• Easy access to a pension that they can understand,
• A pension that offers them a fair deal and value for money
• And if saving for retirement is made as convenient as possible.
For some employers, depending on what provision they already have in place for employees, this could mean significant changes. They will be anxious to ensure that the pension provision they set up for their employees will not affect the competitiveness of their business or the time they have available to run it.
This article sets out core information in relation to the legislation changes and outlines some of the pension options that are available to employers. However, it is important to remember that while there are a number of pension options available, the best option will depend on the employer’s particular set of circumstances. Therefore it is essential that employers seek professional financial advice.
What are employers required to do?
The Pensions Act requires every employer to operate either a suitable pension scheme, or to establish a Standard Personal Retirement Savings Account ( PRSA).
A suitable pension scheme is one where access to the scheme is open to all employees once they have been with the company for at least six months.
In addition, employers must provide their employees with access to at least one Standard Additional Voluntary Contribution PRSA if they do not have an Additional Voluntary Contribution (AVC) facility in their main pension scheme at present or they have not established a separate AVC pension scheme to which all relevant employees can contribute. An AVC is where the employee wishes to supplement their company pension by making additional contributions.
What if they operate an existing occupational pension scheme?
Employers with existing pension schemes will need to review their eligibility conditions in order to:
• Alter the eligibility conditions to meet the requirements of a suitable pension scheme or
• Maintain the existing scheme in its present format and allow access to a standard PRSA for those employees who are not permitted to join the Pension Scheme at present, or within six months of joining their employment
• Ensure that the rules of their existing scheme are amended to allow for the introduction of employee AVC PRSAs.
• Inform scheme members and employees of any relevant changes
Employers will be required by law to provide their employees with an appropriate form of pension provision by the summer of 2003 (date yet to be confirmed).
What is a Personal Retirement Savings Account (PRSA)?
As part of the solution to:
• Offering easy access to pension
• Giving value for money and
• Making saving for retirement convenient
The Government has introduced Personal Retirement Savings Accounts (PRSA).
A Personal Retirement Savings Account (PRSA) is, as the name suggests, an individually held retirement investment account. A PRSA is a tax efficient flexible product, designed to encourage people to take ownership of their future prosperity by saving towards their retirement.
What is involved in providing access to a PRSA for employees?
If an employer is required to set up at least one standard PRSA arrangement, they will be obliged to:
• Enter into a contractual arrangement with a PRSA provider.
• Notify employees of their right to contribute to a standard PRSA.
• Allow a PRSA provider or an insurance advisor sufficient time to consult with employees regarding the setting up of a standard PRSA.
• Employees must also be given reasonable paid time off to make arrangements to set up a standard PRSA, subject to work requirements.
• Make deductions from the salary/wages of an employee at their request
What factors do employers need to consider in deciding which form of pension provision will be most appropriate for their employee’s?
In deciding which form of pension provision will be most suitable for employees, it is very important employers receive professional financial advice so that they can make a considered and educated decision. There are serious issues to be addressed specific to them and their business. For instance, should they provide?
• Full access after six months service to the existing arrangement?
• A PRSA arrangement with employer contributions?
• A PRSA arrangement with no employer contributions? Or
• A combination of arrangements
• Provide death in service and disability benefits
• What about AVCs?
In conclusion, we would advise all employers to seek professional advice. They have new mandatory obligations and a number of options as to how best to meet those obligations. Choosing a form of pension provision is a hugely important decision for both the employer and the employee, it is vital to get it right.
*Source: Central Statistics Office. |
Pat Surlis is national pensions manager with Bank of Ireland Life.
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| Article appeared in the January 2003 issue.
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