The National Pensions Framework was published by the Department of Social and Family affairs on 3 March. The framework sets out the Government's intention for reform of the Irish pension system. The key proposals include a single 33% rate for tax relief on private pension contributions, extension of Approved Retirement Funds (ARFs) to all members of defined contribution schemes and a cap of €200,000 on the tax free pension lump sum. The proposed changes are expected to be implemented over a five year period, with some proposals, such as the extension of the ARF scheme, scheduled for 2011.

As previously reported in eNews, the Renewed Programme for Government set out the Government's plans to introduce a single 33% rate for tax relief on private pension contributions. The proposals in the Framework are designed to implement this commit-ment by providing that personal contributions to pension schemes will be matched by a state top-up payment, equivalent to 33% tax relief. This is good news for taxpayers at the standard rate but will not be welcomed by those who currently get relief at the top rate of 41% plus PRSI etc.

The Framework provides that all defined contribution (DC) arrangements will have access to ARFs at retirement. The flexibility of ARFs was previously confined to self-employed people, propriety directors and AVC holders. ARFs will not be available to members of defined benefit schemes.

The Framework has some harsh things to say about defined benefit (DB) schemes, maintaining that the current design for funded DB schemes has proven to be too inflexible to deal with recent investment losses and with increasing life expectancy. It offers an outline for re-structured DB schemes, which would involve fixed contribution rates for members and employers, flexible benefits (in the event of investment losses or other adverse experience) and increases in life expectancy accommodated in benefit design.

The Commission on Taxation recommended that pension lump sums of less than €200,000 should not be taxed. The Framework sets out the Government's acceptance of this recommendation and proposes that arrangements for the tax treatment of lump sums greater than €200,000 would be considered and developed during the implementation of the Framework.

Among the other proposals are the introduction of a single new public service pension scheme for all new entrants from 2010, and the introduction of a new mandatory “auto-enrolment” pension for employees in the private sector, in 2014. The state pension age will be increased to 66 in 2014 with further increases in 2021 and 2028.

The National Pensions Framework document can be accessed at http://www.pensionsgreenpaper.ie/downloads/NationalPensionsFramework.pdf