Nov 2017
2
Taoiseach Leo Varadkar said that the Government will publish a five year roadmap for pension reform before the end of the year. This will include the introduction of an auto-enrolment pension scheme for private sector workers, two-thirds of whom currently have no occupational pension to supplement their state pension. The first payments are expected to be made into new individually held funds by 2021.
He said the government would “work closely and consult with employers” in designing the new scheme. The Minister for Employment & Social Protection Regina Doherty, said that there will be no discrimination in the new auto-enrolment pension scheme proposed by Taoiseach Leo Varadkar.
“You can’t discriminate somebody that’s earning 20 grand to somebody that’s earning 40 grand,” said Minister Regina Doherty.
“But it’s always going to be based on the percentage, so whatever percentage you put in, the employer will put in a percentage and the State will put in a percentage, and we have to work out the details as to what that percentage will be.”
Related articles
Sep 2017
26
With better living standards and expanding economy, it is without doubt that Irish people are now living longer and we have a much healthier society. At the same time, we need to face the fact that with the Irish population inevitably getting older, there is the prospect that senior citizens will have to stay in employment long after they have passed retirement age. It is therefore absolutely vital to address the funding of the Irish pension system now if we want our pensioners to be well-protected in the future.
To tackle this issue, Brian Hayes MEP has called on Minister for Social Protection Regina Doherty to start work on the introduction of an automatic enrolment pension system, whereby all Irish private sector employees would be automatically enrolled into a pension scheme. As Mr Hayes stated, "a road map needs to be put in place for the introduction of an auto-enrolment system for all Irish businesses. The Cabinet needs to make it a priority to ensure that auto-enrolment is put into Irish Law by 2021. This is something that can be done through cross-party agreement."
In 2012, the UK introduced an automatic enrolment system which is working well and providing long-term sustainability. Automatic enrolment systems have also been introduced in Australia and New Zealand, and similar systems exist in the Netherlands, Sweden and Denmark. These countries are recognised as world leaders in pensions.
Mr Hayes has suggested that Ireland should create its own system, whereby every employee will be automatically enrolled into a pension scheme, into which they should contribute at least 1 per cent of their monthly salary, to be matched by their employer.
Mr Hayes also added, “In Ireland we are far too dependent on our state pension system. We have a very low take up of workplace pension schemes. Less than 40% of Irish workers are covered by a workplace pension scheme. The best way to deal with both of these problems is through an auto-enrolment system which reduces dependency on the state system and ensures people have additional pension pots built up.”
A recent global study called the ‘Melbourne Mercer Global Pension Index’ has stated that Ireland's pension system is good but has serious sustainability problems into the future. Elsewhere, Mercer's report found that Ireland will increasingly struggle to afford the provision of a guaranteed pension for everyone, if the current pension system isn’t addressed.
Mar 2017
29
The current Minister for Social Protection, Leo Varadkar, has, on a number of occasions, mentioned his desire to introduce auto enrolment in Ireland.
This will be a welcome and necessary development as it is unlikely that the current levels of state pension will be sustainable in the medium to long term.
The UK is nearing the end of its auto enrolment roll out and there are, I believe, a number of lessons learnt.
On the face of it, the requirement to enrol an employee into a pension scheme (based on age and earnings), to make deductions/contributions and to allow for opting out, would all appear very straightforward. Not so! Employer guidance extends to many hundreds of pages and the rules are unnecessarily complex.
My first suggestion is to keep it simple. If the minister has his way, auto enrolment may commence around about the same time as Revenue’s Smart PAYE project. This will be a lot to take on board at the one time, particularly if the UK’s auto enrolment rules are anything to go by. Examples of how to make it simpler - link everything to pay date (not pay period) and forego the requirement to apportion.
Next, I would suggest that a common filing standard is adopted at the outset for both enrolments and contributions. This was attempted in the UK, without success. The main problem was the pension companies and their differing systems. Ideally an all encompassing file specification would be mandated and the pension companies would just have to accept. Plus there would need to be common business rules for the various fields in the specification. Lessons learnt here from the SEPA roll out which resulted in similar looking files for the various banks but with very different business rules!
Postponement is a handy feature in the UK system but it does complicate things further. If everything else can be made simple and seamless, then postponement may not be required. Hand in hand with this would be the suggestion that all employees are enrolled no matter what their earnings are and no matter how temporary their employments are for. They would still have the ability to opt out.
Also, the creation of a government backed master trust (similar to NEST in the UK) would further obviate the need for postponement as postponement is generally used to get a pension scheme set up.
In relation to opting out, the opt out window should be linked to the actual pay date of first deduction rather than the auto enrolment date (which itself has many potential definitions) or scheme join date.
Employee communications is another big part of the whole process. The UK communications have evolved and simplified over the last few years and their present format would be fine for Ireland.
Finally, the actual calculation of the pension deduction/contribution should be based on all (taxable) earnings. The UK rules limit the calculation to a portion of the earnings, further increasing its complexity.
The above are my main suggestions and stem from our involvement with the UK system through our UK payroll software, BrightPay, where we have ongoing engagement with employers, accountants, professional bodies, HMRC, the Pensions Regulator, NEST, IFAs and the various pension providers.
Feedback welcome at paul@thesaurus.ie
Feb 2014
14
Here is an article that recently appeared in the online version of Business & Finance and that should be of interest to all Irish employers.
http://businessandfinance.com/whats-coming-down-the-track-for-irish-employers/?ref
Jan 2014
22
Thankfully, we are living longer! This, however, presents a huge challenge for any country’s retirement strategy. Back in 1950, there were 7.2 people aged 20–64 for every person of 65 or over in the OECD countries. This is projected to reduce to 1.8 by 2050. The math is stark. To fund a state pension which pays modern day equivalents to people retiring at 65 will soon become an impossible task. Apart from increasing the already huge tax burden to pay for pensions, there are really only two ways of addressing the problem. One, the retirement age needs to increase and, two, people will need to have private pensions or other incomes to supplement their state pension.
Auto Enrolment addresses the latter. It imposes a legal obligation on employers to enrol their employees in pension schemes and to contribute to these pensions. A deduction is made from the employee’s pay plus the employer contributes as well. Auto Enrolment began in the UK for very large employers in 2012 and is being rolled out to include all employers by 2017. The combined minimum deduction and contribution of 2% is designed to ease employees and employers into the concept but this combined level rises to 8% by 2018.
It should be noted that employee participation is optional. The employer must enrol them but they may subsequently opt out. Therefore, employees who feel that they are otherwise covered (e.g. through rental property and/or other investments) do not have to partake in Auto Enrolment.
The various rules surrounding Auto Enrolment and the structures that need to be put in place are numerous and represent a major undertaking for government, employers and pension companies.
Auto Enrolment (or similar) is an absolute necessity and it is somewhat surprising that Irish plans in this regard are not more advanced.
