The Department of Social Protection said it plans “in the coming weeks” to start its long-awaited official search for four investment firms to manage assets under auto-enrolment, the mandatory workplace pension scheme coming into operation next year.
Officials in the department have also disclosed to The Irish Times that they plan to tweak the fee structure envisaged under the plan to include a flat annual fee which will be levied on each of the 800,000 workers expected to be captured by the scheme, in addition to a charge based on a percentage of assets under management.
They did not give further details on the fees, other than that the department “will ensure these are highly competitive”.
Officials had originally planned for annual management fees of 0.5 per cent of assets under management – with most of the money going to the investment managers – but some also earmarked for running costs of the authority overseeing the scheme, which will be known as My Future Fund.
A flat-fee element would disproportionately affect lower paid workers with smaller investment pots in the scheme.
“The department is currently engaged in preparing and drafting an RFT [request for tender] for investment managers. This work is at an advanced stage and the RFT is expected to issue in the coming weeks,” a spokesman for the department said.
“Fees associated with My Future Fund are under active consideration and are likely to constitute a flat fee for administration purposes and a percentage of assets under management for investment services. Through negotiation with service providers, the Department will ensure these are highly competitive.”
The outgoing Minister for Social Protection, Heather Humphreys, who is not standing in this week’s general election, signed a commencement order in October that would see the long-delayed mandatory workplace pension scheme begin operations at the end of September next year.
[ Pension opt out may disappear as firms look to sidestep auto-enrolmentOpens in new window ]
Her officials aim to select four investment management companies to invest contributions from employees, employers and the State. The investment managers will provide three strategies: higher risk, medium risk and lower risk. All participants will be placed in a default strategy if they do not choose a specific one.
Auto-enrolment will apply to workers aged between 23 and 60 who earn at least €20,000 a year across one or more jobs and are not already members of an occupational pension scheme. Employers and employees will each initially contribute 1.5 per cent of gross earnings to their pension pot, with the Government adding a further 0.5 per cent. The contributions are due to increase in stages, reaching 6 per cent, 6 per cent and 2 per cent respectively in 2035.
The department has signed up Indian group Tata Consultancy Services, which has a base in Letterkenny, Co Donegal, employing 1,400 people, to build and run the auto-enrolment system for the next 15 years at a cost of €150 million. Tata administers a similar system in the UK.
The recent Finance Act 2024 set a taxation approach for benefits in an auto-enrolment investment pot on the death of a scheme member that differs to the one operating under standard defined contribution (DC) schemes or personal retirement savings accounts (PRSAs).
In DC and PRSA schemes, funds in a member’s plan are subject to certain lump-sum limits and inheritance tax rules following their death. However, the recent Act has established that funds in an auto-enrolment plan will be subject to income tax for the beneficiary as they would be entitled to the full amount in the participant’s account in a lump sum.
A spokeswoman for the Department of Finance said its officials and the Revenue Commissioners are considering ways to more closely align the tax treatment on death of both regimes before it becomes an issue, starting with potential measures in Finance Bill 2025.
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