BY JOHN ELLIS, FINANCIAL ADVISOR
The Government’s introduction of the Automatic Enrolment Retirement Savings System Bill 2024 marks a significant step in tackling the pension coverage gap. Under this scheme, employees within specific age and earnings criteria and who do not already have an occupational pension will be automatically enrolled. Contributions will be made by employees, matched by employers with an additional top-up from the Government.
However, concerns are increasing over the scheme’s structure and impact, with leading actuaries and economic experts warning that the system may do more harm than good. They argue that the incentive framework is flawed, leaving high earners worse off and failing to address gender inequalities in pension provision.
Brian Woods, a self-employed actuary and former financial director at Ark Life, has highlighted a fundamental issue with the scheme’s incentive model. Under auto-enrolment, the State contributes €1 for every €3 an employee saves, but this is significantly less generous than the 40% tax relief higher earners currently receive through private pensions.
This gap may result in nearly 200,000 workers being forced into a financially inferior system unless they opt out. Woods, along with retired actuary Colm Fagan, argues that these misaligned financial incentives could destabilise the scheme before its official launch on September 30. “The whole thing is messy and impractical and it’s not going to work,” Woods warns.
Adding to these concerns, key areas remain unanswered. No asset managers have been appointed, no fee structures established, and there is uncertainty about whether individuals can transfer between private and auto-enrolment schemes as their financial situations evolve. This raises questions about the system’s long-term viability and effectiveness in achieving its goal of universal pension coverage.
Beyond financial concerns, the new scheme has been criticised for “perpetuating structural gender inequalities within the pension system”.
A report by the National Women’s Council (NWC), ‘Still Stuck in the Gap – Pensions Auto-Enrolment From A Gender and Care Lens’, finds that while auto-enrolment will increase overall pension coverage, it will do little to close the 35% gender pension gap as auto-enrolment is tied to paid employment. It fails to account for unpaid care work, disproportionately undertaken by women and women are more likely to take career breaks for caregiving and are mostly in low-paid, part-time work, meaning they contribute less to pensions and subsequently receive lower retirement income.
Orla O’Connor, Director of the NWC, said: “As one of the biggest reforms of our pension system in decades, the new pension auto-enrolment scheme fails to address the deep inequalities in our pension system.”
She also emphasised that older women were already at a disadvantage due to “historical structural discriminations,” such as the Marriage Bar, and were more likely to live alone or in substandard housing.
The report recommends a shift in focus toward strengthening the State pension as a more equitable means of ensuring financial security in old age.
The Irish auto-enrolment system is modelled on the UK’s Nest scheme, which successfully increased participation in pension savings but also led to high dropout rates, low investment levels, and excessive administrative costs. Given these issues, experts believe that the Government should learn from international lessons and enhance the scheme before rolling out.
The Government now faces a critical decision, push ahead with an untested and flawed system or conduct an independent review and take steps to make the necessary reforms to ensure the scheme is workable and beneficial for all participants from outset.
Given the stakes, workers’ financial security in retirement, it is imperative that policymakers listen to the expert concerns raised and act before it is too late.
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