Cabinet approves Bill to introduce pension auto-enrolment
Draft legislation designed to set up the new pension auto-enrolment system has been approved by the Cabinet.
If enacted, the Automatic Enrolment Retirement Savings System Bill will result in up to 800,000 private sector workers, who currently do not have a pension, becoming automatically enrolled in one.
The aim of the plan is to extend pension coverage across the working population, in order to ensure workers are properly financially prepared for retirement and not solely reliant on the State pension.
The scheme will use a similar model to the old Special Savings Incentive Accounts, with employees making a contribution, which is matched by their employer and topped up by the State.
Employer and employee contributions will start at 1.5% of gross salary for the first three years.
This will increase to 3% in year three to six, 4.5% in years six to nine and to the maximum contribution rate of 6% from year ten onwards.
The State will also make a contribution at a rate of €1 for every €3 saved by the employee.
In practice this means that for every €3 put in by a member, they will end up with €7 in their pot.
For a person earning the national average wage of just under €45,000 per year and saving continuously for 40 years at the full contribution rate of 6% of their gross pay, under the system they would end up with a savings pot of just under €750,000.
The plan has been the subject of discussion by successive Governments and the pensions sector for decades, but so far without delivery.
If the legislation which was brought to Cabinet today by Minister for Social Protection, Heather Humphreys, is passed it will pave the way for one of the biggest reforms of the pension system in the history of the State.
All employees not already in an occupational pension scheme and aged between 23 and 60 and earning over €20,000 across all of their employments will be automatically enrolled in the system.
Experience from other countries shows that once people are auto enrolled, very few people decide to leave the system.
However, it’s understood there will be provisions in the legislation to allow workers to opt out or suspend contributions should they wish to after a mandatory participation period of six months.
In circumstances where someone does opt-out or suspend their contributions, they will be automatically re-enrolled after two years.
But they will be able to opt-out or suspend participation again after a further six-months.
A new National Automatic Enrolment Retirement Savings Authority will be set up to manage the system, while commercial investment firms are tendering for the role of “registered provider” to invest contributions made by members.
Participants will be able to choose from a range of savings funds, including a default fund for anyone who prefers not to choose, as well as an alternative choice of funds for those who wish to be actively involved in investing their funds.
Drawdown of money in the funds will be aligned with the age of the State pension age, which will remain in place.
In recent months, employers have been expressing concern about the cost burden which auto-enrolment will place on them at a time when they are also facing a raft of additional labour costs.
Now approved by Cabinet, it is hoped that the bill will begin its passage through the Oireachtas after Easter.
It’s understood Heather Humphreys wants to have the Bill enacted as quickly as possible so that that the new system can commence and first contributions to AE can start on 1st January 2025.
However, some pension experts have expressed scepticism about the ability to deliver the system in that timeframe because it has been the subject of repeated delays.
The Government will also face a significant challenge in selling the project to workers, with research last year showing that seven in every 10 members of the public are unaware of it.
While research from the Central Statistics Office shows just one in five of those with no occupational pension from their current employment are aware of the plan.
Hilary Larkin, Head of Outsourcing at Mazars, said she believes that that the current timeline is “very optimistic”.
“At this stage, an implementation date of 1 January 2025 seems very optimistic given the level of infrastructure that needs to be put in place in order for the scheme to be operational,” she said.
“Once the bill is written into legislation the government will have to commence the tender process with investment companies. It is proposed that there will be a panel of four companies who will offer four schemes to employees (conservative, moderate risk, higher risk and a default).”
“The National Automatic Enrolment Retirement Savings Authority will also need to be established to administer the scheme. Once both are in place a clear communication strategy will need to be rolled out for employers by the government – the success of the scheme will depend on careful planning and a willingness to adapt based on feedback and evolving needs.”
Article Source – Cabinet approves Bill to introduce pension auto-enrolment – RTE
