BY JOHN ELLIS, FINANCIAL ADVISOR
Ireland is currently the only country in the Organisation for Economic Co-operation and Development (OECD) that doesn’t operate an Automatic Enrolment or similar system as a means of promoting pension provision. Current analysis shows that 50% of Irish workers are in a pension scheme but when this 50% is further analysed it shows that, when public service employees are taken out, as they are 100% enrolled in a pension scheme, the number of employees without a pension in the private sector is a massive 70%.
The goal then is to increase the pension coverage rate through the introduction of a “mandatory or quasi-mandatory earnings-related system”.
In 2018 a ‘Strawman’ proposal for an Automatic Enrolment retirement savings system was published proposing a possible approach to an Automatic Enrolment (AE) system and provided the basis for a wide-ranging consultation process on the operational structure and design of the system.
At closing 107 written submissions were received and meetings were held with officials from the Department of Social Protection, The Pensions Authority, the ESRI and stakeholders from ICTU, Irish Life, IBEC, and Insurance Ireland.
When launching the report, Committee Cathaoirleach Deputy Denis Naughten said: “This is an important piece of legislation which is being designed to simplify the pensions decision for workers and make it easier for employers to offer a workplace pension… it signifies a shift from a system whereby employers may or may not make provision for a workplace pension scheme to one where every worker will have access to a workplace pension.
“A Call for Tender has now been issued for the provision of” a Managed Service for the Provision and Operation of the Automatic Enrolment Retirement Savings System”.
When the scheme is in place employees will have access to a workplace pension co-funded by the employer and the State with matching employer contributions and a State top-up on a sliding scale. It will be voluntary, in so far as workers will have the ability to opt-out or suspend participation for periods of time. It will be open to all employees aged between 23 and 60 years who are earning at least €20,000 a year across all employments and are not in an existing workplace pension scheme that meets the minimum contributions requirements.
When the scheme is in place it will be covered by a strong governance framework, incorporating annual reports with investment advice being offered to all members to allow them to select the most appropriate fund for their age, gender, financial position, and circumstances.
Not only will the scheme be to the benefit of employees within the framework, but it is hoped that a certain proportion of the funds to be invested will be placed in Irish pension funds as currently only 20% of investments by Irish Pension funds are invested in Irish equities and bonds. There is a suggestion that “there should be a mandatory minimum of auto-enrolment funds invested in Ireland to ensure that this country benefits economically from these very large funds”.
Regarding environmental, social, and governance issues. it is suggested that investment funds be prohibited from investing in fossil fuels or the arms industry with a minimum percentage of the funds invested in Irish renewable energy developments to ensure our Climate Action obligations are met, for, without achieving these, the future of all pension funds will be at risk from climate change.
From discussion with employers many are setting up their own schemes and those with schemes are proposing to increase contributions in time for the rollout deadline as many see the need to carefully consider government oversight in the investment process, tax relief – as no tax relief will be available on deductions – investment options and charging structures, as setting up or enhancing a company sponsored scheme will be more beneficial especially for the higher income cohort.
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