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.
