Auto-enrolment is going to be a hard sell. For some reason, the outgoing Government seems determined to make it even harder.
The new mandatory workplace pension scheme, now expected to kick in next September, will target up to 800,000 people who are aged between 23 and 60, earning more than €20,000 a year and not yet signed up to an occupational pension scheme.
Telling companies that already operate a workplace pension scheme that they will now have to accommodate two parallel but unequal arrangements only adds to their sense that the Government is not really listening to their concerns about rising costs.
[ Has Fingal County Council found a solution to Ireland’s housing crisis?Opens in new window ]
Telling people who are still feeling the pinch of prices that rose sharply over recent years, that they will have money taken out of their pay packet every month and why that is in their best interest is going to require an intense campaign of communication — by government and by employers.
The Government scheme will deduct 1.5 per cent of a person’s gross (before tax) pay initially, rising in steps to 6 per cent in year 10 and from then on. However, this money will be taken from workers’ net pay after tax, so the impact will be greater.
If you’re on the average industrial wage, the initial impact will be almost 1.9 per cent of your take-home pay, not 1.5 per cent. And this will rise to 7.6 per cent in year 10, not 6 per cent. That matters, not least when the tax relief available under the new scheme will not be as advantageous to members as it is to people in more traditional company schemes.
From Apple Tax to Swiftonomics: 2024 in review
And now the Government is moving to further disadvantage the least well-off of those who will come under the new scheme. The intention had been to levy charges for the administration of the fund and the management of the investment on a percentage basis, which has the advantage of treating everybody equally.
Now, however, someone in the department has decided to charge a flat annual fee on each member for the running of the scheme, alongside the percentage charge for investment management. There’s lots of talk about keeping fees low but the issue, of course, is that a flat fee is more onerous on those with lower pots in the scheme — mostly members who are less well-paid
This seems manifestly unfair. And it will certainly make it even more difficult to “sell” the advantages of auto-enrolment to people working in generally lower-paid sectors of the economy.
As the outgoing Minister, Heather Humphreys, said some time ago, we are talking about auto-enrolment for the guts of 30 years. You’d think, in that time, they would have had an opportunity to think things through.
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
