This month, we focus on the current practices of master trusts in Ireland, changes in the State pension and the review of the Standard Fund Threshold regime.
Master trusts in Ireland
In a short number of years, master trusts have become an integral part of the Irish pension landscape, mirroring their growth in other jurisdictions where they have been introduced.
Our recently published report exploring the current state of the master trust market in Ireland supports employers who are considering moving to a master trust as well as those who have already moved. In the report, we share our insights on the master trust market, the value these master trusts can deliver and whether employers’ pension arrangements are delivering that value.
We address a range of topics in our report, including a stock-take of the master trust market in Ireland, an assessment of what the future might look like, views on the strengths and weaknesses of master trusts, and perspectives on how employers can enhance employee experience through master trusts.
Current master trust practices
In the move to a master trust, there are some key factors for success, including:
ensuring that pension communications fit with a company’s own reward communications cycle and the wider benefits a company offers;
ensuring that the type, content and frequency of communications are suitable for your workforce;
receiving appropriate information and feedback as an employer to ensure oversight is maintained (the Pensions Authority noted this as an area where experience has been variable to date); and
understanding the role and responsibilities of trustees versus the role of the founder of the master trust.
Where employers are being proactive to shape communication strategies with their master trust and using/adapting reporting metrics to influence this strategy, we see greater engagement and a more positive experience for members.
We encourage employers to consider their initial experiences with their master trust from both the employer and employee perspective. Our report may offer helpful prompts on how this could be improved.
Short-term challenges
As master trusts grow rapidly, they face administrative challenges—which is not unexpected given the current environment and demands. These challenges are not unique to master trusts, but they will receive greater attention and there will be a focus on ensuring members are not adversely impacted. Strong oversight from employers helps ensure this is achieved.
The future journey
Moving to a master trust should be seen as the beginning of a journey and not the destination. There is value for employers in ensuring they benefit from the advantages a master trust brings, thereby maximising its impact for members. For further information and a copy of our full report, please contact the PwC Pensions team.
The State pension age
1 January 2024 saw the Social Welfare (Miscellaneous Provisions) Act 2023 come into effect. This Act allows individuals to draw the State pension between the ages of 66 and 70, with an actuarially increased rate to reflect the later payment commencement date. Individuals can also make additional PRSI contributions after age 66, subject to a maximum of 40 years, to increase the level of their State pension.
Importantly, employer and employee PRSI will continue to be payable until the State pension has been drawn. PwC’s Munro O’Dwyer recently discussed this issue with Newstalk’s Pat Kenny.
For employers, this new flexibility for employees may lead to increased demands for later retirements, which may not align with contractual mandatory retirement ages. In 2024, legislation is expected to be introduced that will prohibit employers from setting mandatory retirement ages below the State pension age.
Standard Fund Threshold review
The impact of the Standard Fund Threshold’s (SFT) €2m limit on retirement savings gained publicity recently as more employees breach, or are at risk of breaching, this limit and face the prospect of a significant tax bill as a result.
Donal de Buitleir has been appointed by the Minister of Finance to conduct a review of the SFT regime. This review will examine various issues, including the following:
The role of the SFT in the current pension landscape;
The potential impacts it may have on the recruitment and retention of employees; and
The rate at which the cap should be set.
The findings of this review will be relayed to the Minister of Finance for consideration this summer and PwC has made a submission to this consultation. In our view, a penal tax regime at the point where pension benefits are accessed would discourage retirement saving. For this reason, we believe the SFT regime should provide adequate scope for an appropriate level of retirement savings without any adverse tax implications at retirement.
Its current level of €2m, having not been indexed since 2014, is starting to create unintended consequences as outlined above. For this reason, we recommended it be increased now, or at least going forward, against an appropriate index. There are also administrative aspects of the SFT regime that can be simplified to ensure a consistent and fair approach for public and private sector employees, and for defined benefit and defined contribution savings.
How can we help?
The Irish pensions landscape is undergoing unprecedented change. 2024 will be an important year for employers to define their organisation’s future pension and retirement strategy. Our Pensions Services team can provide an independent market perspective and expert advice to help you identify a sustainable way forward.
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