That the target date for the introduction of auto-enrolment on pensions has been moved back to the second half of next year comes as no surprise. Originally due to come in early next year, many in the pensions industry feel that further delay is likely, given the complexity of the structures which are being established while businesses are warning about the additional costs and bureaucracy they face.
It is clear that Minister Heather Humphreys and her civil servants are now working hard to get the scheme up and running. This is welcome, as a significant number of people in employment would otherwise be left relying entirely on the State pension, including many in low-paid jobs.
Some 750,000 to 800,000 people without supplementary pension provision may be signed up by the new scheme in its first phase. Employees will be automatically enrolled, but can subsequently opt out. Under the plan, for every €3 they pay in, their employer would pay the same and the State would top this up by €1. The proposal is that the scheme would apply to those aged between 23 and 60 ,earning at least €20,000 per annum, though there have been convincing calls for the lower age limit to be reduced or removed. The ICTU has said the provision is “classist” and pointed out that many people start work between 16 and 18 years of age and do not attend college, often because they cannot afford to. A tender has been issued for an administrator for the scheme and one will follow for investment managers.
Auto-enrolment has been under discussion here for at least 15 years and, as Ireland is the only OECD country without such a scheme, it is important to get on with it. Deadlines are important, but getting the structure right is vital. Above all, the scheme must work in the interest of the pension holders, carefully limiting the costs which the industry can apply. Some important questions have been raised here, particularly about what happens after a person retires.
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The fact that the tax relief offered on the auto-enrolment scheme will differ from tax relief currently offered on ordinary private pensions is far from ideal. The Government pleads that the system as outlined for auto-enrolment is simple – and it is. But there will be complications here for both businesses and their employees and it creates some uncertainty for the future.
The pensions industry is going through a period of change, with onerous new regulation pushing many defined contribution private pensions into large combined master trusts which manage pensions on behalf of a number of organisations. Auto-enrolment may accelerate this consolidation. In turn the economies of scale involved should lower costs. It is important that these gains go to the pension holders rather than to an industry which historically has been fond of charging its customers at every turn.