The introduction of automatic pension enrolment in January will “undoubtedly” involve additional costs for businesses, but these will dissipate over time, the Department of Social Protection has said.
Only about 35 per cent of private sector workers are currently in pension schemes, which means they would be dependent on the State pension when they retire. In many cases that would result in steep drops in living standards in retirement.
To address this, anyone aged 23-60 and earning in excess of €20,000 a year will be automatically enrolled in the new scheme – called My Future Fund – on day one of their employment.
It is expected that about 750,000 workers will be enrolled in this way.
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Under the terms of the scheme, employers and employees will each initially contribute 1.5 per cent of gross pay, increasing to 3 per cent after three years, to 4.5 per cent after a further three years, and finally to 6 per cent in year 10 and from then on.
Contributions will be made equally by employees and employers with the State providing a top-up of €1 for every €3 saved by an employee. So, in short, every €3 saved by an employee will automatically become €7.
Tim Duggan, assistant secretary general with the Department of Social Protection, was before the Oireachtas joint committee on social protection, rural and community development to answer questions on the scheme on Wednesday.
While the scheme was broadly welcomed by the committee, a number of members raised concerns about the additional cost for businesses at a time when there is already significant pressure on margins.
Mr Duggan acknowledged there would be a cost, but said the scheme had been designed to ease any pain. “Undoubtedly, this is an additional cost if you’re employing people,” he said.
“However, it has been deliberately designed that instead of introducing the contribution at 6 per cent from the very beginning, it is phased in over a decade to allow employers to adjust budget-wise.
“In most cases, and the experience of other counties has shown, that when you introduce it on a gradual basis like that, it becomes part of the normal remuneration negotiation that goes on between employers and employees on a continual basis.”
[ Will starting a pension now exclude daughter from availing of auto-enrolment?Opens in new window ]
He said there had been extensive talks with the Irish Business and Employers Confederation (Ibec), the Irish Small and Medium Enterprise Association (Isme), and other business lobbies, and that “practically all of them” are “fully supportive” of the scheme.
The scheme has been the subject of numerous delays as businesses have readied themselves for its introduction. Mr Duggan insisted it would “absolutely” be rolled out on January 1st without any further holdups.
“We have made excellent progress in getting everything ready for the launch in January,” he said.
Tata Consultancy Services, based in Letterkenny, Co Donegal, has been appointed as a managed service provider of the scheme’s administrative services and is currently configuring and testing its systems in line with the scheme’s requirements.
Three investment managers – Irish Life Investment Managers, Amundi and Blackrock – have been selected for the scheme.
Mr Duggan said the department is making “considerable progress” in staffing and resourcing the new authority, which will be called the National Automatic Enrolment Retirement Savings Authority or NAERSA.
The recruitment of a chief executive and of board members are at a “final stage”, he said, while competitions are under way for the senior management positions. The scheme overall will create about 140 jobs in Letterkenny.
