Employers group Ibec has expressed alarm at Government plans to introduce last-minute legislation to prevent perceived abuse of the State’s new mandatory workplace pension scheme that comes into effect on January 1st.
In a letter to the Minister for Social Protection Dara Calleary, Ibec chief executive Danny McCoy says he is “concerned about the scope for adverse unintended consequences on existing pension schemes if the proposed regulation is enacted with undue haste and without proper consultation during the run-up to Christmas”.
Mr Calleary plans to bring forward an urgent regulation forcing company pension schemes to ensure at least 3.5 per cent of a worker’s salary is paid into the fund each month. Otherwise those workers will be signed up to the Government’s My Future Fund under auto-enrolment.
If Irish households are so rich, why does it feel like an illusion?
The department said the move was designed to counter perceived abuse of the scheme by some employers.
RM Block
The 3.5 per cent figure matches the initial contributions that will be made under auto-enrolment. Of that, 1.5 per cent of gross salary will come from the worker, a matching 1.5 per cent from the employer and 0.5 per cent from the State on the basis of its €1 for every €3 invested by the worker.
In a recent letter, the department said it had become aware that some employers were illegally looking to force employees to join in-house schemes with contributions of as little as 1 per cent, which would be of “marginal, if any, use to them” in terms of improving financial security in retirement.
In response, Ibec, stressing its support for auto-enrolment, says the proposed “arbitrary” new rules could force workers “out of schemes that they have willingly belonged to for years”.
It notes that minutes of a Labour Employer Economic Forum pensions subgroup two years ago record the department’s position being that as long as either an employer or employee was making any contribution to a pension scheme, the worker would be exempt from auto-enrolment – at least in the early years of the scheme.
This was on the basis that “the complex issue of setting minimum standards should not be simply based on contribution rates”, Ibec said, quoting minutes of that meeting. The forum is designed to allow trade unions, employers and Government discuss areas of shared concern affecting the economy, employment and the labour market.
“This response was consistent with the current departmental guidance on its website, which states that for the first few years of auto-enrolment, any pension contribution greater than zero will be enough to exempt an employment,” the letter adds.
Ibec wants the Government to adopt what it calls a “more considered” approach by deferring the introduction of any new rules for six months to assess the scale of any abuse and the capability of the National Automatic Enrolment Retirement Savings Authority, which is overseeing auto-enrolment, to identify such cases.
It says that would also allow time to assess whether existing legislative safeguards could deter such abuse.
From January, up to 750,000 Irish workers who are aged between 23 and 60, earning in excess of €20,000 and not yet a member of a workplace pension scheme, will be automatically signed up to the State’s My Future Fund. Others earning less or outside those age limits can choose to do so.
