Ireland to bring in auto enrolment for pensions

Ireland – which is one of only two OECD countries without a mandatory earnings-related element to retirement savings – is consulting on the possible launch of an auto enrolment-style pensions regime, to be in place by the end of 2020

The proposals suggest all employees earning over €20,000 (£18,000) and between the ages of 23 and 60 who do not already have pension arrangements would be auto enrolled into a defined contribution (DC) retirement savings scheme.  Current estimates suggest this amounts to around 410,000 employees.

All other employees earning less than €20,000 or outside of the age band suggested, and those who are self-employed, would have the option to ‘opt-in’, which could bring an additional 675,000 people into the regime.

Everyone will have their own savings ‘pot’ and the system would operate a ‘pot-follows-member’ approach so that, regardless of the number of employments a person has, they would always have one consistent retirement savings arrangement over their lifetime.

Initially, employees will make contributions of 1% of earnings. This would auto escalate by one percentage point each year until year six when the contribution rate will be fixed at 6%.

There will, for the first time, be a mandatory employer contribution to the employee’s account, with employers required to make contributions matching those of their employees with the same increments in the same timeframe subject to a maximum of €75,000 of earnings. Such employer contributions would be tax deductible.

While discussion is ongoing about the level of state backing, the consultation suggests the government will contribute €1 for every €3 the employee contributes towards their retirement savings account. When the employee contribution ultimately rises to 6%, the state contribution will rise to 2%. 

Introducing the so-called ‘Strawman’ proposals, Regina Doherty, minister for employment affairs and social protection, said: ‘The Strawman should not, in any way, be construed as a confirmation of what form automatic enrolment will ultimately take. Readers should not take the key features as definitive.  It is a high-level draft intended to generate and prompt discussion and improved ideas.’

The system would be overseen by a statutorily-independent ‘Central Processing Agency’(CPA). Employers will be required to register their employees with this CPA and deduct their contribution through payroll and then hand these over to the CPA.

The CPA will run a tender to select a maximum of four ‘registered providers’ and each of these will be required to provide three different retirement saving fund options based on risk.

The CPA will provide a secure portal through which employees will then be able to choose the registered provider and the particular savings fund they wish depending on their risk appetite, with a default option for those who do not indicate a choice.

Doherty said: ‘This CPA-based approach with a limited number of providers allows us to achieve significant economy of scale and in that way gives us the ability to dictate the governance and communication standards we want, to impose a tight regulatory regime and to minimise charges which is critical for the savings pots of lower to middle income people.’

The plans allow for savings suspension periods, and retirement income at the pay-out phase will be based on a customer choice of the standard drawdown options such as lump sums, annuities, approved retirement funds, and providers will be required to facilitate all of these.

Doherty said: ‘Automatic enrolment will provide the basis for perhaps the most fundamental policy reform in a generation in terms of retirement savings provision. It will ensure the combined use of public and private pension savings allows employees, employers and the State to play a part in addressing the provision of retirement incomes.

‘Automatic enrolment will overcome the decision-making inertia which prevents large numbers of employees from saving for retirement whilst ensuring they retain the freedom to opt out from the benefits of the system should they so choose.’

The consultation on the proposals is open until 4 November.

A Strawman Public Consultation Process for an Automatic Enrolment (AE) Retirement Savings System for Ireland is here

Report by Pat Sweet 

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