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Pension auto-enrolment: Workers and consumers will pay for the scheme, say employers

Aon study also says more action is needed to address pensions gap that leaves women at a disadvantage in retirement

Employers say they will pass auto-enrolment costs on to consumers or to workers by limiting future wage rises. Photograph: iStock

Employers plan either to limit future pay rises to offset the cost of auto-enrolment or pass the costs on to consumers in a move that will further impact efforts to reduce inflation, according to a new report.

Professional service firm Aon said two-thirds of Irish businesses have concerns about the planned introduction next year of the compulsory workplace pension scheme. Up to 800,000 private-sector workers could find themselves signed up to the scheme. How to manage the increased costs involved in the scheme and how it will impact on existing pension schemes those businesses run are the principal concerns, alongside worries that they have yet to get sufficient clarity about the final design and detail of the proposed pension scheme.

Aon surveyed more than 150 businesses across the State and found that 42 per cent plan to adjust future employee compensation levels to manage the increased costs created by the system, including the contributions required of the employer.

Three in 10 respondents said they would be passing any costs of auto-enrolment directly to their customers, with the figure jumping to 40 per cent among mid-sized businesses.


Mairéad O’Mahony, head of human capital at Aon, said that “in particular for businesses operating on tighter margins it is just increasingly more difficult to understand where they are going to find a source for it if it does not get passed on to the consumers or the employees”.

Ibec and others have been lobbying Government hard in recent months to row back or stall a series of recent labour measures – including enhanced sick leave allowances and a substantial increase in the national minimum wage – that have added to costs.

Ms O’Mahony said the introduction of auto-enrolment was a “landmark moment” with far-reaching implications for workers and employers.

The scheme proposed to sign up workers aged between 23 and 60 and earning more than €20,000 to a workplace pension with initial contributions of 1.5 per cent of salary from the employee and employer, rising in four steps over a decade to 6 per cent each. The State would contribute €1 for every €3 put in by the worker.

“Our research reveals that most business leaders believe the system will help to create a fairer and more equitable pensions landscape in Ireland,” she said. “However, the proposed system is not perfect and additional measures should now be considered to further address the gender pensions gap.”

Ms O’Mahony suggested one way to do so would be for the State to step in and meet employee and employer contributions to auto-enrolment that will be missing due or periods of maternity or parental leave or part-time leave.

“That would make a massive difference,” she said, “because we know a big chunk of the pensions gap is down to periods of absence from the workplace because women are far more likely to be part-timers or to have taken career breaks.

“The other thing that would make a difference would be to lower the salary threshold as we know women are more likely to be lower paid. The lower the earnings threshold, the more women in particular that you bring into the savings net.”

She is also in favour of catching workers as soon as they enter the workforce rather than waiting until they are 23, in part as it will mean women contributing more towards retirement.

Dominic Coyle

Dominic Coyle

Dominic Coyle is Deputy Business Editor of The Irish Times