Any assessment of the Government’s efforts to introduce auto-enrolment for personal pension schemes must begin with the numbers.
According to the Competition and Consumer Protection Commission (CCPC) more than a quarter of Irish adults have no financial plan in place for their retirement. Of particular concern is that the number is up from one in five last year.
Anyone without a private pension scheme will be reliant on the State pension system, the finances of which look set to become increasing precarious if demographic changes are not arrested, most likely through immigration. The number of workers per pensioner is set to drop from around 4 to 1 to roughly 2 to 1 by 2050.
For a Government that is regularly and often rightly criticised for not thinking and planning for the long term, the introduction of auto-enrolment is something of an outlier, and a welcome if somewhat belated one at that. We are the last member of the OECD club of rich nations to introduce such a scheme.
RM Block
The idea was first proposed in 2006 by the then Minister for Social and Family Affairs Séamus Brennan. After several false starts the Oireachtas passed the Automatic Enrolment Retirement Savings System Bill last year. The system – known as My Future Fund - will launch on January 1st for employees not enrolled in a company scheme by this month.
Under the plan, employers will have to match employee contributions up to a maximum of 6 per cent of salary after 10 years, while the State will make a top-up payment that will rise to 2 per cent over the period.
The mandatory employer contribution is the most contentious aspect of the scheme and along with the administrative burden will represent a significant cost, particularly for small and medium-sized businesses. These concerns are one of the reasons that it has taken so long to introduce the scheme despite the fiscal imperative to address the under-provision of private pensions,
Ahead of the deadline, there are reports that some firms are trying to push employees into joining in-house pension schemes that require less administration and involve smaller or no top up payments . The Minister for Social Protection, Dara Calleary has said he will introduce legislation to close off this loophole,
The extent to which this practice is widespread is not known. Employers are indeed facing a range of extra costs, but making a small contribution to an employee’s pension is a reasonable “ask.” In the longer term, it also avoids an unsustainable load on the exchequer.
There are other areas where the Government should look to reduce business costs. But Ministers need to underline the longer-term imperative that pension auto-enrolment is a success.
