It appears that the pension auto-enrolment scheme announced with much fanfare by the Government faces further delays.
Now envisaged as beginning in 2025, pension auto-enrolment faces a number of hurdles before it can be up and running for employees.
Auto-enrolment is intended to be one option in a range of pension options for private sector workers to prepare for retirement. The State pension, occupational pensions, and personal pensions will continue to be options for retirement income.
Auto-enrolment
The new pension scheme is intended to provide essential retirement income and supplement the State pension for the thousands of private sector workers who do not have either occupational pensions or personal pensions in place for their retirement.
The basis of the scheme is that it is an opt out rather than an opt in scheme, meaning that an employee will be automatically enrolled in the scheme, with some exceptions, and will have to opt out if they do not wish to contribute.
The employee’s pension contribution will be a percentage of their earnings which will be equalled by an employer contribution and topped up with a smaller State contribution.
The Department of Social Protection, headed by Minister Heather Humphries, has expressed that the scheme will not be in place before 2025.
Call for clarity
The Irish Association of Pension Funds (IAPF), the organisation representing pension savers, is broadly in favour of the auto enrolment pension plan but has called for clarity on the launch of the scheme.
In their pre-Budget submission, the IAPF has outlined some of the obstacles and stated that it will be “impossible for employers and employees to properly plan for such a vague date”.
Delays
It appears that no funds are intended to be earmarked in the upcoming Budget for State contributions to the new auto-enrolment scheme.
It also appears that the required infrastructure has only partially been put in place so far to allow the scheme to go ahead, despite the legislation underpinning auto-enrolment being passed by the Oireachtas.
Although the Department of Social Protection has confirmed that an IT company, Tata Consultancy Services, has been selected to administer the system, no tender process for asset management firms who might manage the investments has commenced.
New Public Body
A new State agency, the National Auto Enrolment Retirement Savings Authority (NAERSA), is intended to be established with responsibility for overseeing the scheme. However, this agency is yet to be set up.
Hundreds of thousands of private sector workers, estimated at 750,000 to 800,000, will potentially be included in the scheme overseen by NAERSA as it is intended that all workers will be included in the scheme that are aged between 23 and 60, not currently part of a pension plan, and earning above €20,000 per year.
Costs for businesses
The time frames and contribution rates have been set out for the new scheme with employee and employer contributions set to rise from 1.5% of the employee’s annual salary in years 1 to 3 of the scheme to 6% in year 10 and beyond.
This presents a challenge for employers in the current climate of rising costs. Increased costs such as energy bills, minimum wage increases, as well recent increases in employer PRSI and changes to statutory sick pay have all come on board for employers of late. There will also be necessary payroll costs and administration associated with auto-enrolment.
Worker engagement
It may also be the case that, without a comprehensive and clear communication campaign, employees may see auto-enrolment as an additional expense in a time of high inflation and cost of living increases.
Without clear communication and information from the Government on the benefits of saving for retirement, workers may feel that they simply cannot afford such high pension contributions and see auto-enrolment as a burden rather than a valuable way to accrue a pension pot.
National Pension Helpline
National Pension Helpline offers information and articles on pensions as well as advice from trusted pension advisors.
We can assess your current pension arrangements and discuss the best pension options for you. For example, whether or not your current personal pension is better than an auto-enrolment pension for you. We can also advise you as to how best to start saving for your retirement if you do not currently have any pension.
Contact us or fill in our online assessment and we can offer a free, impartial and confidential pension consultation so that you can feel peace of mind that your retirement finances will be in place when the time comes.
