What is changing on 1 January 2015?

Some of the rules on pension plans will be changing from 1 January 2015. Almost every pension plan, possibly including yours at BeFrank, will have to be amended. The following changes may have to be made:

  • Maximum accrual percentages will be reduced
  • A maximum pensionable salary will be introduced
  • The minimum non-pensionable margin for retirement and partner’s pensions will be changed
  • A voluntary net pension may be accrued

What does the reduction in accrual percentages mean?

From 1 January 2015 the maximum accrual in an average salary plan will be 1.875% per year of service. The maximum tables for defined contribution plans are based on the maximum accrual percentage for average pay plans. New maximum tables that are lower than the current tables will apply from 1 January 2015.

The maximum accrual in a final salary plan will be 1.657% per year of service. As our partner’s pension is based on final salary, the maximum percentage for the partner’s pension will be 1.16% per year of service from 1 January 2015. The orphan’s pension will be a maximum of 0.232% per year of service.
The table shows the new maximum average pay and final salary percentages.

  Average pay Final salary
Retirement pension 1.875% 1.657%
Partner’s pension 1.313% 1.160%
Orphan’s pension 0.263% 0.232%

How do the old and new tables compare?

The old maximum contribution table and the new contribution tables are set out below. These are type II contribution tables, for an entitlement to retirement pension and deferred partner’s pension.

Age Table 2012(actuarial interest rate 4%) Table 2012(actuarial interest rate 3%) Table 2015(actuarial interest rate 4%) Table 2015(actuarial interest rate 3%)
15 – 20 4.6% 8.1% 4.1% 7.2%
20 – 25 5.3% 9.0% 4.7% 8.0%
25 – 30 6.4% 10.5% 5.7% 9.3%
30 – 35 7.8% 12.2% 6.9% 10.8%
35 – 40 9.5% 14.2% 8.4% 12.5%
40 – 45 11.6% 16.5% 10.2% 14.6%
45 – 50 14.2% 19.2% 12.5% 17.0%
50 – 55 17.4% 22.4% 15.4% 19.8%
55 – 60 21.5% 26.4% 18.9% 23.3%
60 – 65 26.8% 31.4% 23.6% 27.7%
65 – 67 31.5% 35.7% 27.7% 31.5%

What is the effect of the new maximum pensionable salary of €100,000?

The current method for accruing a pension for salary above €100,000 will no longer be allowed. The contributions for the part of the salary over €100,000 will no longer be tax deductible. Nor will it be possible to insure a partner’s pension for the amount above this limit. The cap does not apply to the occupational disability pension.

How will the non-pensionable margin change?

The target level for the retirement pension in defined contribution plans is changing to 75% (40*1.875%) of the average salary. The minimum non-pensionable margin will, therefore, become 100/75 of the state pension for a married person.

The target level in final salary plans remains at 70% (40*1.657%) of the final salary earned. The minimum non-pensionable margin for the partner’s pension will, therefore, become 100/66.28 of the state pension. This is an increase compared with the current situation and so many partner’s pensions will be reduced.

The differences between the current and new non-pensionable margins based on the current state pension are set out below.

  2014 (10/7 * state pension) 2015 (100/75 * state pension) 2015 (100/66,28 * state pension)
Minimum non-pensionable margin €13,449 €12,553 €14,204

How can a voluntary extra pension be accrued for salary above €100,000?

Employees who earn more than €100,000 will be able to save for a net pension by paying a voluntary contribution from their net salary. No tax has to be paid in box 3 on the value of this net pension. A pension benefit must be purchased for this benefit as usual. The later benefits are also untaxed.

Is BeFrank charging for these changes?

No. We will not charge for the changes that have to be made to your plan as a result of a change in the law.

Do I have to discuss this with my employees and the staff council?

Yes. The new legislation means changes to the pension agreement between you and your employees and so you have to agree the way the pension agreement is changed with your employees and the staff council if you have one.

Will BeFrank contact my employees?

We believe our proposal fits best with your current plan. You can use it to decide, in consultation with your employees, how the pension plan will look. After we have made the adjustments in our systems, we will notify your employees about the changes to the pension plan.