Timetable for auto enrolment pension plan may prove too challenging for State

Plans to introduce pension auto enrolment from the start of 2024 may prove to be too ambitious for the Government, according to an international retirement planning expert.

Minister Heather Humphreys announced last month that draft heads of legislation would be examined by an Oireachtas committee before the final legislation is published. However, the minister’s current timeline foresees the mandatory workplace pension scheme being up and running by January 2024. That is just 14 months away.

Alistair Byrne, who is head of retirement strategy in EMEA at State Street Global Advisors, is a strong supporter of auto enrolment but he thinks the Minister for Social Protection might struggle to meet her own timeline.

“It seems challenging,” he said.

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“The central processing authority has to come into existence. I imagine there are people in Government who are actually working as if they were the central processing authority but it has to come into existence and it then has to do some reasonably involved tenders for administration services and investment services and that sounds to me a lot to do in essentially a year in order to get it up and running.

It’s an area State Street has expertise in as the largest provider of fund administration services in the State.

Mr Byrne compares the Irish timeline with the experience in Britain where the Personal Accounts Delivery Authority was set up to develop and deliver its auto enrolment scheme. That group was established in July 2007 and it was more that five years later – October 2012 – before employers started enrolling their staff.

“So it is sounds ambitious but I am not party to how much work has been done behind the scenes,” he said.

Mr Byrne is a strong proponent of the scheme. He recognises the challenge of putting a new mandatory saving scheme in place in the middle of a cost-of-living crisis and a time of economic challenge but argues that there is never going to be an ideal time to start such a project.

“That’s why the phasing is important”, he said, referring to the structure that will see workers contributing just 1.5 per cent of their gross income initially, with the figure rising as high as 6 per cent but only after a decade. The employer will match worker contributions and Government will contribute €1 for every €3 saved by the employee.

He thinks the decision to aim for a long-term contribution level of 14 per cent [the worker’s 6 per cent plus the employer’s 6 per cent and the State’s 2 per cent] is appropriate, noting that the UK aimed initially for a composite 8 per cent and was now looking at raising that again to 12 per cent amid fears the scheme would not deliver adequate replacement income in retirement.

However, he thinks the decision to enrol workers only at 23 and with income of more than €20,000 runs counter to the whole point of the scheme.

“When you look at these systems around the world, having broad coverage seems to be the successful route. So if someone is 18 and they do have some surplus income and they are happy to save, they should have the same nudge as everyone else: if it is not appropriate for them or they have some debts, they can opt out,” he says.

“For a significant proportion they would benefit from being in the scheme for those five years [from 18 to 23, when you can take higher investment risks], Mr Byrne added.

He said the income limit runs the risk of missing out on gig workers in multiple employments and also women who may be working part-time for family reasons and who are already underrepresented among private sector pension scheme numbers.