Another target date for an auto-enrolment pension scheme likely to be missed

The proposal for a national auto-enrolment pension scheme has been kicking around for quite a while, and it now looks very likely that yet another target date for the introduction of the scheme will be missed.

The concept has been debated in various countries around the world since the 1980s, and Ireland has been committed to introducing one since the late Seamus Brennan published a Green Paper on the topic during his period as social welfare minister in 2007.

The aim is to address relatively low rates of supplementary pension coverage among private sector workers by introducing a mandatory or soft-mandatory national scheme. All employers would be required to participate and enrol employees in the scheme unless they had a superior occupational scheme already in place.

In the mandatory option, such as the scheme which has been in operation in Australia since 1992, individuals have no option to leave the scheme unless they are members of an approved alternative. In the soft-mandatory scenario members are allowed to opt out but are automatically re-enrolled at certain intervals – the hope being that people will eventually choose to remain in membership.

No action was taken on foot of the 2007 Green Paper until 2011 when minister for social protection Joan Burton proposed a scheme which would see all employees over the age of 22 automatically enrolled with minimum contributions of 4 per cent for the employee, 2 per cent for the employer and 2 per cent for the State.

Employees would have the ability to opt out but would be re-enrolled automatically every two years and would have to continually opt out if they wish to remain outside the system. The aim was to have a scheme in place by 2014.

False dawn

That announcement proved to be something of a false dawn, however, and, with the exception of an inter-departmental working group looking at the issue, nothing further of substance happened until 2018, when the government published its “strawman” consultation paper on the proposed scheme and a subsequent five-year roadmap for pensions reform.

The roadmap envisaged every employee between the ages of 23 and 60 earning over €20,000 with no private pension provision being auto-enrolled in a national scheme. Those outside these limits would be able to opt in if they wish. Employee contributions would be matched by the employer, with the government topping it up at a rate of €1 for every €3 contributed by the employee.

The roadmap envisaged the scheme roll-out beginning in 2022 on a phased basis. At the outset employees will be required to make initial minimum default contributions of 1.5 per cent of qualifying earnings, increasing by 1.5 percentage points every three years thereafter to a maximum contribution of 6 per cent at the beginning of year 10. Employers will be required to make a matching contribution on behalf of the employee at the specified contribution rate.

That target date is now looking decidedly optimistic. A quite complex administrative infrastructure is required to operate the scheme, and there has been little or no progress reported on its establishment. For example, the Central Processing Authority (CPA) required to source providers, set minimum standards, and enrol employees has yet to be set up. As a consequence, no standards have been set nor have any providers been selected.

Shane O'Farrell, director of product with Irish Life Corporate Business, accepts that the scheme's introduction will be delayed, but is hopeful that lost ground can be made up.

"Irish Life are strong advocates of auto-enrolment as the single best way of tackling pension planning, as we have seen from very successful schemes in the UK and New Zealand.

“The experience in these countries is that people will accept pension savings if it’s made really easy for them. Auto-enrolment is not on track for next year, but with immediate action in relation to systems building and key decisions we do believe it could be up and running in late 2023, with the total focus of all the stakeholders involved.”

Target

"It's been kicked down the road again," says Emmet Leahy, head of financial planning with Davy. "That's not surprising given all the other issues the Government is contending with. The target is officially 2023 now but that could be kicked down the road again if it's not given enough attention. I hope that doesn't happen."

Bank of Ireland's head of pensions and investments Bernard Walsh also believes the target will be missed, but suggests an alternative way forward. This would see an element of compulsion introduced to private sector pension schemes.

“Every employer in the country is required to offer a pension scheme or at least a PRSA (personal retirement savings account) to its employees. It would be relatively simple to require all new employees to be auto-enrolled in these schemes from their first day in work. It could be made part of people’s contract of employment.

“It would at least mean everyone starting a new job would get on the pensions train. We already have that infrastructure in place in the private sector. It will probably take a number of years for the auto-enrolment scheme to get up and running, but we can do this now and we should kick it off now.”