New pension regime raises various issues

EMPLOYERS and pension fund trustees have been warned to think carefully about how to navigate the law changes on pensions.

Under The Pensions (Amendment) Act 2002 they face a number of challenges in 2003, said pensions consultant, Kevin Cruise O’Shea of Coyle Hamilton, one of the country’s leading brokers and consultants on financial affairs.

One of the most pressing issues facing employers as we move into 2003 is what stance to adopt on Personal Retirement Savings Accounts (PRSAs) expected to come on the market in February or March.

All firms, big or small, will have to offer a PRSA option to workers once they become available probably in early February 2003.

If employees are eligible to join the company scheme after six months then they have no worries. But if that is not the case then companies face a number of options.

Option one is to put all workers on the employee scheme.

Option two is to set up a PRSA and the third and most radical choice is to move away from the existing company plan, especially if it is a defined benefit scheme, and switch over to a PRSA based pension.

But employers need to be wary of going for what looks like the better option for them from a funding stand point.

Kevin Cruise O’Shea warns that employees have rights in that area under Irish law.

If a company opts for a PRSA facility it will be required to select a standard PRSA product and provider.They will also be obliged to notify employees of the plan and arrange a payment facility for workers into the plan.

Because of the changing environment employees may have false expectations about what money they can take with them to another fund when the two year restriction period is met.

It was important that companies make clear their entitlements under the law.

If they do they will avoid controversy and “help dispel unrealistic expectations” of being able to get cash back when leaving the job.

Under the new regime those paying into pensions for over two years cannot get cash back when moving to another job.

They can transfer their contributions to their new job, but will not be allowed to get cash back.

In the run up to the new pension environment Mr Cruise O’Brien said that most employers are adapting their existing schemes to accommodate new entrants.

To get over the new law many firms are simply adapting their pensions, particularly those with defined contribution plans, to fit the new legal framework.

Another point highlighted by the consultant is the pressure on existing defined benefit funds.