A national auto-enrolment occupational pension scheme has been promised on at least six occasions since 1997. The latest proposed date for its introduction was 2022. While the pandemic has seen the matter pushed to the back burner, it is vital that work perfecting the recipe continues.
It looks as if it will be. The programme for government published during the summer commits the Government to introducing a pension auto-enrolment system. However, it says, taking account of the “exceptional strain” both employers and employees are now under, it will seek to deliver it “gradually”.
Under it, matching contributions will be made by both workers and employers, and the State will top up contributions.
It commits to a phased rollout, over a decade, of the contribution made by workers, and an opt-out provision for those who don’t wish to participate. Workers are to have a range of retirement savings products to choose from under it, with a charges cap imposed on pension providers.
"Lots of good work has been done in relation to auto-enrolment but the Covid crisis has meant that, obviously, in terms of Government priorities, it has slipped down a bit, and understandably so," says Shane O'Farrell of Irish Life.
Many of the employers which would have come under auto-enrolment changes are likely struggling the most as a result of the current crisis, he points out. However, that is not to say that work on achieving this long-standing goal should come to a halt.
“It will take two or three years for the boring legal or technical work, the foundations for the system, to be done in any case, so we believe it’s important that this behind-the-scenes work continues,” he says. “It’s a bit like an oil tanker in so far as we’ve got two years to start turning this vessel.”
The Department of Social Protection has done great work so far in relation to auto-enrolment, which will help but it will, he says, take a full two years for the technical work to be done in advance of launch. By that stage "hopefully we will be out of the Covid crisis".
Incentives
A key part of that work will be decisions such as what the incentive is going to be for participants, whether tax reliefs or some kind of bonus mechanism, or a combination of both.
It will also be important to ensure people don’t end up with lots of tiny pension pots as they move from employer to employer over their lifespan. It will be much better to have one pot that moves with you.
However, that will require a centralised database and a central processing authority, or CPA. The creation of these entities will take time to agree, which again means the sooner work starts, the better.
Unfortunately, all this has to happen at a time when government departments such as the Department of Social Protection are already coping with an unprecedented crisis.
On the plus side, the public looks to be on board. Industry research suggests that “90 per cent of people want to be in a pension arrangement, but what they don’t want is the hassle of paperwork,” he says.
Even for employers, at least prior to the pandemic, the barrier issue was not so much the cost as the fear of an additional bureaucratic burden, he suggests, which is why the mechanics of the scheme must be as easy as possible.
"It's a good time to use the progress of IT to make it slick, we may get second-mover advantage too because we can look at the UK and New Zealand and learn from their mistakes, including the lessons of the UK, which didn't develop a CPA," says O'Farrell.
“In New Zealand, Revenue there has done a very good job creating a centralised authority and pulled it together, so they can see if employee A moves to employer X.”
UK experience
Legal and General provides investment solutions to pensions trustees looking after defined-benefit and defined occupational pension schemes. It currently has €1.4 trillion in assets under management and is one of the largest providers of auto-enrolment schemes in the UK.
"We see the introduction of auto-enrolment there as having been very successful, with more than 10 million people auto-enrolled in the UK as of last year," says Richard Kelly, Legal and General's head of client business in Ireland.
What auto-enrolment does is get our natural inertia working in our favour. “That same inertia that kept people from taking out pensions before auto-enrolment is preventing them from opting out, which is great,” says Kelly.
What has been learned from the UK experience is that the age at which people can join should be as young as possible, and at which they can continue contributing should be as old as possible, he suggests. Minimum and maximum salary bands should also be looked at askance.
“We have to remember what we are trying to do here. It’s to develop a culture where people save for the future. We are going to live longer, we are going to need retirement income to last longer, and we can’t rely on the State as much as previous generations did. So it’s important for people to be able to start as early as possible,” he says.
It’s not about figures right now but about changing mindsets, says Kelly. “We have built up a lot of momentum in Ireland in recent years, it would be a shame to see that lost.”
