An article authored by partner and head of Pensions, Stephen Gillick, entitled 'Consider Master Trusts Ahead Of Auto-Enrolment' appeared in the November 2021 issue of Business Plus.

Ireland operates the Exempt, Exempt, Taxed (‘EET’) system of pension taxation relief. This system means that both employer and employee contributions are exempt from tax. It also means that the investment income and capital gains made by the pen-sion are exempt. Benefits are only taxed when the pension is in drawdown. Employer contributions to occupational pension schemes are fully deductible for corporation tax purposes, up to certain limits. This can be useful for business owners who are also directors or senior employees of their companies. It is possible to use employer contributions as a means of increasing pension contributions beyond the individual age related limits.

Company Pension Schemes

Company pension schemes are typically set up as Defined Contribution (DC) schemes. This means that employer and employee contributions are invested, and the proceeds are used to buy a pension come retirement. Company pension schemes must obtain Revenue approval to gain ‘exempt approved’ status and must be registered with the Pensions Authority. Members of DC schemes will typically have several fund choices available to them, which can be selected according to risk appetite. Members can usually obtain access to the value of their fund whenever they choose.

Master Trust

A company pension scheme can also be set up under a Master Trust, a DC scheme that can be utilised by multiple employers that are unrelated to one another. Master Trusts offer a professional trustee board, which typically takes the form of a corporate trustee. All of the functions of a pension scheme, such as administration, investment and member communications, are dealt with by the provider. Employers retain control of some aspects of their scheme, such as the level and frequency of contributions and the method by which contributions are paid. There is a financial benefit as well, with both employers and their employees benefitting from economies of scale. There are two main factors that are likely to make Master Trusts a mainstay of the Irish pensions landscape:

• Auto-Enrolment, which led to a huge increase in the popularity of Master Trusts when it was introduced in the UK.

• The European IORP II directive, which was transposed into Irish law earlier this year.

Its prescriptive requirements will put pressure on smaller pension schemes, in terms of the regulatory burden and costs.

Auto-Enrolment

This is a good time for employers to begin considering a company pension scheme. Though the government has stated that Auto-Enrolment (AE) will be delayed until 2023, its introduction will require all employers to enrol certain staff in a pension scheme and to contribute to it. The government has signalled some of the key aspects of Auto-Enrolment when it is eventually introduced. AE will use a defined contribution model: the state will make a contribution, as yet unspecified, on behalf of each member, and employer contributions will match those of their employees. Some other features have been confirmed in principle and are subject to change. Amongst these is a proposed default contribution rate of 1.5% of qualifying earnings. It is proposed that this rate will increase by 1.5% every three years, leaving a maximum contribution rate of 6% at the end of the first 10 years of AE. Employers will have to match that contribution within an overall qualifying earnings threshold of €75,000.