Pension Auto Enrolment: An Update

    It’s 2024, the year when pension auto-enrolment is due to be introduced. Anne O’Doherty gives us an update on the status of the proposal, the timeline and what considerations need to be considered at this stage.

    What is pension auto-enrolment?

    Auto-enrolment is a new system to try to encourage people to make adequate provision for their income at retirement. It will work by having employers automatically enrol their employees into a workplace pension scheme. It is aimed at those people who currently are not in a company pension scheme. This is to increase active participation of the private sector workforce in supplementary pension provision.

    What is the current timeline for introduction?

    The proposal announced in 2022 had auto-enrolment scheduled to go live from the first quarter of 2024. That means that all employees not already contributing to an existing employer pension scheme and within certain age and earning parameters, will be required to automatically enrol in the new scheme. However, we are still awaiting the publication of the Automatic Enrolment Bill. The commencement date is currently now flagged as the second half of 2024, according to the Department for Social Protections website.

    Who will be automatically enrolled?

    All employees earning over €20,000 per year, aged between 23 and 60, and who aren’t already in a pension scheme will automatically be enrolled into the scheme. Those outside the earnings and age brackets, and who aren’t already in a pension scheme, will not be auto enrolled. However, they may choose to opt in if they wish.

    How does the scheme work?

    The current design is set up so that all employee contributions will be matched by the employer and topped up by the State. The initial employee contribution will start at 1.5% of gross pay, increasing to 3% in year 4, 4.5% in year 7 and a maximum of 6% in year 10. This translates to a total of 3.5% of an employee’s salary in year one (1.5% from each of the employee and employer plus 0.5% top up from the State). On the phased basis, in year 10 this would then be a total contribution of 14% (6% from each of the employee and employer plus 2% top up from the State).

    What do employers need to be aware of?

    • Eligibility Criteria

    Group pension schemes tend to have an eligibility period, often mirroring a probationary period. The average length of time is usually around 6 months. However, now on joining a company, an employee will be automatically enrolled into the new state scheme. This will be until such time as payroll detects an employer’s contribution into an alternative arrangement. There will be circumstances where an employee is auto enrolled and then sometime later is eligible for the existing company arrangement.

    • Alternative Arrangements

    The objective of auto-enrolment is to encourage people to make adequate provision for their income at retirement. What it doesn’t consider is the other options that are available. Some of these might be more beneficial for certain people, particularly those who are higher rate taxpayers. It’s very important that employers seek advice and enable this cohort to be educated in the various options.

    • Existing Schemes

    Auto-enrolment by its nature is not voluntary, whereas most existing company arrangements are. That means that employees do not have to join the company scheme. For employers, with existing schemes in place, this may mean that it will become necessary to adjust these to ensure all employees have immediate, compulsory membership. Again, there is an education aspect required here so that both employers and employees understand their options.

    What do employees need to be aware of?

    • Auto-enrolment

    The scheme will do what it says on the tin. That is all employees earning over €20,000 per year, aged between 23 and 60, and who aren’t already in a pension scheme will automatically be enrolled into the scheme. There may be alternative options available to them and it is strongly recommended to seek professional advice.

    • Opting out

    Employees who are enrolled will have to stay in the system for 6 months. They will then be free to opt out in months 7 and 8 if they so wish. In the first ten years, employees will also be able to opt out in months 7 and 8 after each contribution rate increase. Employees who opt out or suspend their contributions will be automatically re-enrolled after two years. This is once they are still eligible for the scheme.

    Overall, slowly we are getting closer to Pension Auto-Enrolment. But there is still a lot of questions around how the scheme will work in practice. There is an amount of education required for employers and employees. This will help ensure that they are fully informed about all their retirement options. When, and if, the scheme does roll out later this year the implementation will certainly cause some teething problems. In all likelihood this is going to be a far less flexible option than some of the alternatives. Our advice for all employers and employees is to seek professional advice as to the most appropriate option for their circumstances.

    How to get financially fit for your retirement

    Introduction

    Retirement marks a significant milestone in life, a period where you can finally take a step back and unwind. But financially preparing for retirement is extremely important. People are living longer and leading more active lives in retirement. As a result, it is more important than ever for you to think about where your income will come from when you retire. Here are a couple of the essential steps we advise in ensuring you are financially fit for your retirement.

    1. Start Early, Save Wisely

    One of the golden rules of retirement planning is to start as early as possible (but it is also never too late!). The power of compounding works wonders over time. Even small, regular contributions to your retirement fund can grow substantially over the years. Remember there is significant tax relief on pension contributions that you can also avail of.

    2. Set Clear Financial Goals

    Determine your retirement goals – where you want to live, what activities you want to pursue, and the kind of lifestyle you wish to have. If you have a clear vision, it will help you estimate how much money you need to save for a comfortable retirement.

    3. Create a Budget and Stick to It

    Budgeting is crucial at every stage of life, but it becomes even more more when you’re preparing for retirement. Track your expenses, identify unnecessary costs, and allocate funds towards your retirement savings. You need to ensure that you are putting something aside on a regular basis in order to fund your retirement.

    4. Diversify Investments

    Diversification is key to managing risk. Spread your investments across various asset classes like stocks, bonds, real estate, and mutual funds. Diversification can help you achieve better returns while mitigating potential losses. Many pension plans offer access to multi-asset funds at different risk levels which can help you diversify.

    5. Clear Debts Before Retiring

    Entering retirement with debt can put a significant strain on your finances. Prioritize clearing high-interest debts like your mortgage and credit cards. Being debt-free allows you to enjoy your retirement without the burden of monthly payments.

    6. Consider a Part-Time Job or Hobbies for Income

    This is something that we get asked about a lot. Retirement doesn’t necessarily mean you have to stop working altogether. Many more people are reducing their hours or switching to a different part-time job or even pursuing hobbies that generate income rather than simply not earning or relying on their pension alone. Not only does this provide financial support, but it also keeps you engaged and active.

    7. Plan for Longevity

    With advancements in healthcare, people are living longer. Plan your finances with the expectation that you might live well into your 80s or 90s. This means ensuring your savings can sustain you for several decades. Retiring at 68 could mean you still have 20 + years ahead of you.

    8. Seek Professional Financial Advice

    If navigating the complexities of retirement planning seems daunting, don’t hesitate to seek advice from Quintas Wealth Management. That’s what we’re here for.  We’ll help you select the right pension for you. Just get in touch to start planning your financially fit retirement.

    Quintas Wealth Management to join Xeinadin Group along with Quintas Accountacy

    Irish accountancy and wealth management firms Quintas and Quintas Wealth Management have announced they are joining Xeinadin Group, one of the leading professional services groups in the UK and Ireland. This strategic move will facilitate the companies’ growth ambitions.

    Speaking about the announcement, Anne O’Doherty, Head of Life & Pensions with Quintas Wealth Management, commented, “This is an extremely exciting development for our business and will benefit our clients greatly by giving access to broader resources and technologies while retaining the ethos and client-focused wealth management solutions that the Quintas Wealth Management team have built. It will be business as usual and there will be no change in how we work with our clients.”

    As Quintas Wealth Management operate in a regulated sector, Xeinadin must obtain all necessary regulatory approvals from The Central Bank of Ireland. The integration process will only commence on receipt of all regulatory approvals which could take up to 12 months to complete in full.

    We will keep our clients updated on a regular basis throughout this process to ensure a smooth transition.  In the meantime, should you have any questions please just get in touch.

    The coming of age for PRSA’s

    PRSA’s are growing in popularity having had a very low uptake when they were initially introduced. Our Head of Life & Pensions, Anne O’Doherty looks at this current trend, the drivers behind it and why there is a coming of age for PRSAs.

    What is a PRSA?

    For many years a Personal Pension was the main option for retirement savings for those who were self-employed or not in a company pension plan. This changed in 2003 with the introduction of Personal Retirement Savings Accounts (PRSAs). In essence, a Personal Pension and a PRSA are designed to do the same thing. That is to provide a way of saving for retirement. They benefit from the same tax treatment and access funds in the same way. But a PRSA was designed to be more flexible and transferable.

    What are the benefits of a PRSA?

    The main benefits of a PRSA are linked to its flexibility and transferability. These include being available regardless of your job or employment status, being able to increase, decrease or stop contributions at any stage without penalty and being able to transfer to another provider. In addition, a PRSA give you more options at retirement. For example, you can continue making contributions after you retire, while also receiving a pension income.

    Can an Employer contribute to a PRSA?

    Yes, an Employer may contribute to employees’ PRSAs but are not obliged to do so. Their obligation lies in providing access to the PRSA. Where an employer doesn’t have a pension scheme they need to provide employees with access to at least one standard PRSA. They must allow the PRSA provider or intermediary reasonable access to the employees at their workplace and facilitate payroll deduction of contributions.

    Is BIK charged on PRSA contributions?

    One of the biggest changes to PRSAs and a driving factor in their growing popularity was the removal of the Benefit-in-kind (BIK) charge on Employer contributions. Where contributions were previously treated as a BIK for the purposes of employee income tax, these contributions will now not attract a tax charge for an employee. Since the 1st of January 2023, Employees can pay unlimited BIK free contributions to a PRSA for an employee including company directors. These contributions will not be limited by salary and service, existing scheme funding or retained benefits.

    When is a PRSA a good option?

    The flexibility and transferability of PRSAs always made them a good option for certain people. A combination of factors has now thrown this net much wider and makes them attractive in several other circumstances. These include the option as an alternative to a group pension scheme, especially for smaller companies. BIK has been removed and this is a valuable benefit for employees. PRSA’s can be a flexible alternative to a Master Trust in place of an Executive Pension scheme.

    Next steps

    The flexibility that PRSA’s offer and the breadth of fund choices, now coupled with the additional funding options, make them a very attractive option for those wishing to start saving for their retirement. Several of the product providers have recently launched new PRSA product ranges. This is to ensure that they meet clients’ needs in as easy a way as possible. If you’d like to find out what the best options are for your own circumstances just get in touch with us at Quintas Wealth Management. We’re happy to talk you through your choices.

    ARFs and Annuities – what happens after you retire?

    We talk a lot about saving for your retirement and starting a pension plan. But what actually happens when you retire? You have built up a pension fund so what do you do next?

    There are two main options available for you to choose from at this stage, an Approved Retirement Fund (ARF) or an Annuity.

    An ARF is a post-retirement investment fund typically used to invest any retirement funds remaining after taking a tax-free cash. The funds transferred to an ARF can be drawn down in a flexible way during retirement. 

    An Annuity is an investment option for your pension fund. It guarantees to pay you a particular amount every month throughout your life in retirement.

    These two options, while both are for when you retire, provide very different solutions. How to use your pension fund to provide for their retirement is one of the most important decisions you have to make. Which option is the right one for you depends on various factors including value of your fund, level of income required and your state of health.

    This recent article in Irish Broker Magazine gives a very good comparison of the two options. We are happy to help guide you through these differences in relation to your own circumstances to help you make the decision that best suits you. Just get in touch today for an initial chat because we know what counts.

    Planning your financial future – what to know about asset transfer

    The old cliché comes to mind when discussing succession planning. You know the one, death and taxes…. You’ve worked hard all your life to own your home, pay off debts, secured large deposits/investments, purchase a second property… the list goes on. Now you’re faced with the scenario where your beneficiaries have to sell a portion of these assets in order to satisfy the tax man. They will only benefit from as little as 66% of the value of said property. But by understanding the scenarios and asset transfer they can avoid this.

    What are the scenarios?

    Broadly speaking there are three scenarios that can be come about:

    1. Transfer ownership while you’re living. Thus discharging all responsibility to your beneficiaries before you die
    2. Make provisions for your wishes upon death
    3. Untimely death without provisions being made

    Did you know you have the option to mitigate the potential tax bill for your beneficiaries with two of these scenarios? Even where you believe you won’t incur a tax bill for the transfer, it is worth considering the future. Remember current Revenue CAT thresholds and tax rates are only that, current! It would be remiss to take them as guaranteed.

    A closer look at Scenario 2

    Scenario 2 is the most frequently seen case that our clients present. Yes they have a Will. And some level of discussion has been had with adult children, extended family and beneficiaries. Yes too there will be a big tax liability. There’s not much can be done about that. At least that is the perception without exploring all the options. 

    What our clients don’t always know is that provisions can be made to protect your loved ones from this tax bill. One such provision is what’s known here in Ireland as a Section 72 policy. It is a life assurance policy. But unlike a typical life policy, it does not create an additional tax bill in the hands of your estate.

    Example: Section 72 Policy

    The below example gives a very crude example of the difference.

              Let’s assume you have one beneficiary (a child) who has already availed of their full Category one CAT threshold of €335,000 when you transferred your second property to them 5 years ago     

    Scenario 1 incurs a Revenue bill of €264,000 for the beneficiary. That is 88% of your cash and investments go straight to Revenue. Scenario 2 incurs a bill of €660 with the family home. 100% of cash and investments to into the hand of your elected beneficiary.

    Another, less known about option, is a Section 73 savings policy. The regular investment policy is set up at the outset with this option included. Premiums are paid for a minimum of 8 years, the person(s) giving the gift/inheritance takes out the policy; they are also the owner(s) of the policy. Once you have met the criteria for the Section 73 relief, after 8 years the policy can be encashed and proceeds used to pay the gift tax liability.

    Next Steps

    Financial Advisors the length and breath of the country talk about risk daily. Market risk, volatility factors, capital at risk, the list goes on. What greater risk is there to those you care about most than your untimely death without a Will or with a significant change that was put on the long finger.

    If you’d like to take a closer look at planning your financial future, asset transfer options and what kind of plan is right for your circumstances, just get in touch with us at Quintas Wealth Management, because we know what counts.

    5 Top Questions about – Income Protection

    We believe Income Protection cover should form an important part of any financial planning conversation. After all it is your income that provides the funds to pay for almost everything else. So what would you do if you couldn’t work to earn that income? In this piece, Anne O’Doherty, Head of Life & Pensions, looks at the key questions we are asked when we discuss income protection.

    What is income protection?

    In the very simplest terms Income Protection is a type of protection policy designed to protect your income. It provides an alternative income if you are unable to work due to injury or illness. This can give you financial security and peace of mind while you recover. We all have mortgage protection, car insurance, home insurance and travel insurance, to name but a few. But what pays for all these things? Your income. So why would you not consider protecting it.

    How is income protection different to serious illness cover?

    The main difference is that Income Protection pays a regular income whereas Serious Illness cover pays a once off lump sum when you claim. In addition, Income Protection is occupation dependent and covers any illness, injury or disability that prevents you from working. Serious Illness cover is available regardless of your occupation but only the illnesses specified on your plan are covered. The other big difference is in the tax treatment of each plan. Tax relief is available on your Income Protection premiums but the benefit is taxed. However, with Serious Illness tax relief is not available on your premiums but the benefit payment is tax-free.

    How much cover can I take?

    You can insure up to 75% of your income minus any State Illness benefit you are entitled to. Currently this is €220 per week (or €11,440 per year). So if you earn €80,000 you can insure a total of €60,000 less €11,440 or up to €48,560 per year. This means that you would receive a taxable income of €4,046 per month until you get back to work or your policy ends.

    If you are self-employed, then you are not entitled to any State Illness benefit. This means you can ensure up to the full 75% of your income.

    The important thing is to work out how much income protection cover you may need. Think about your income and your outgoings, how much income do you need to cover your living expenses?

    How long will I be covered for?

    If you can’t work because of illness or injury, your income protection plan gives you a replacement income until you either return to work or if you’re not fit to return before then, the ceasing age you selected when taking out the policy. You can also decide at outset when you would like to be able to access the plan, should you need to. This is called the deferred period and is usually anything from 13 to 52 weeks.

    That sounds really appealing but is it expensive?

    At the end of the day, it depends on the value you put on having an income should the worst happen. The cost varies depending on a range of factors including your occupation, your health and age as well as how much income you wish to insure. We believe that some level of Income Protection should form part of a robust financial plan and it really is down to how much you think you will need as a replacement income. There are lots of different factors that affect the cost. It can be reduced by insuring a smaller portion of your income or selecting a different deferred period. Remember to that you can claim tax relief on your premiums.

    If you’d like to take a closer look at Income Protection and what kind of plan is right for your circumstances, just get in touch with us at Quintas Wealth Management, because we know what counts.

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