THE Department of Social Protection said it plans “in the coming weeks” to launch its long-awaited formal search for four investment firms to manage the assets under automatic registrationthe compulsory workplace pension scheme which will come into force next year.

Department officials also revealed to the Irish Times that they plan to change the tariff structure envisaged under the plan to include a flat annual contribution which will be levied on each of the 800,000 workers expected to be affected by the scheme, in addition to a charge based on a percentage of assets under management.

They did not provide further details on the fees, other than to say that the department “will ensure that they are highly competitive.”

Officials had initially planned for an annual management fee of 0.5 percent of assets under management – ​​with most of the money going to investment managers – but some also anticipated operating costs for the authority overseeing the program , which will be known as My Future Fund. .

A flat-rate element would disproportionately affect lower-paid workers with smaller investment funds in the program.

“The department is currently engaged in the preparation and drafting of an RFT (call for tenders) for investment managers. This work is at an advanced stage and the RFT is expected to be published in the coming weeks,” a department spokesperson said.

“Fees associated with My Future Fund are actively reviewed and are likely to be a flat fee for administration purposes and a percentage of assets under management for investment services. Through negotiations with service providers, the Department will ensure that they are highly competitive.

The outgoing Minister of Social Protection, Heather Humphreyswho is not running in this week’s general election, signed a decree in October that would see the long-delayed mandatory workplace pension scheme come into effect at the end of September this year next.

( Pensions opt-out clause could disappear as companies seek to circumvent auto-enrolmentOpens in a new window )

Its officials aim to select four investment management companies to invest contributions from employees, employers and the State. Investment managers will suggest three strategies: higher risk, medium risk and low risk. All participants will be placed in a default strategy if they do not choose a specific one.

Automatic registration will apply to workers aged 23 to 60 who earn at least €20,000 per year from one or more jobs and who are not already affiliated to an occupational pension scheme. Employers and employees will each initially contribute 1.5 per cent of their gross income to their pension fund, with the government adding a further 0.5 per cent. Contributions are expected to increase in stages, reaching 6 percent, 6 percent and 2 percent respectively in 2035.

The department signed an Indian group Tata Consulting Serviceswhich has a base in Letterkenny, Co Donegal, and employs 1,400 people, to build and manage the automatic registration system for the next 15 years at a cost of €150 million. Tata operates a similar system in the United Kingdom.

( Indian company Tata Consultancy Services selected to build auto-enrollment pension systemOpens in a new window )

The recent Finance Act 2024 set out a tax approach to benefits from an auto-enrolment investment pot on the death of a scheme member which differs from that operating under standard defined contribution (DC) or Personal Retirement Savings Accounts (PRSA).

In both DC and PRSA plans, a member’s plan funds are subject to certain capital limits and inheritance tax rules after their death. However, recent law has established that funds in an automatic enrollment plan will be subject to income tax for the beneficiary, as the beneficiary will be entitled to the full amount in the participant’s account as an amount flat rate.

A Department of Finance spokeswoman said its officials and the Revenue Commissioners were considering ways to more closely align the death tax treatment of the two regimes before it became an issue, starting with potential measures in the 2025 finance bill.

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