Proposals to reform Ireland's pensions system have been broadly welcomed, especially a plan to ensure all private sector workers are members of a private pension scheme. However, there is some concern that the timeline on introduction of many of the changes is too ambitious.
The plans outlined by the Government on Wednesday will see the introduction of a new auto-enrolment scheme that will see almost all workers enrolled in an occupational pension scheme on top of their entitlement to a State pension.
It will also involve reform of how people qualify for the State pension and the planning of future pension increases, as well as simplifying the whole area of pensions, and allowing people to work for longer if they choose.
Auto-enrolment
Business lobby group Ibec said it was important that the Government liaised with businesses on the design and governance of the proposed auto-enrolment scheme if it was to “gain the confidence of employers and employees”.
“The introduction of auto-enrolment will be a major administrative undertaking,” said Ibec chief executive Danny McCoy, “so there must be a clear road map and realistic lead-in time. Given the potential impact on labour costs, Government must also give a firm commitment that there will be no further cost increasing measures during the roll-out period.”
The Irish Association of Pension Funds, which represents the pensions sector, said the introduction and development of a universal retirement savings plan – auto-enrolment – was imperative to ensure that people don’t suffer poverty in retirement.
It also welcomed proposals to simplify the pensions landscape.
"The pensions community has been crying out for a simplification of pension and tax rules for some time," said IAPF chief executive Jerry Moriarty. "There are currently too many rules which confuse and frustrate those attempting to save for retirement. We are hopeful that these reforms will deal with much of this unnecessary complexity.
Defined contributions
He said the trend over recent years to move people from final salary or defined benefit arrangements to defined contribution schemes had placed a lot of responsibility on individuals. “So it is important that they can easily understand the decisions that they need to make,” he said.
Alistair Byrne, head of European DC investment strategy at State Street Global Advisors, said the Roadmap to Pensions Reform contained "important measure to improve the financial security of Irish people in retirement".
He was particularly enthusiastic about auto-enrolment. “We can expect take up rates of 80 to 90 per cent, based on international experience, while allowing people for whom saving is not currently appropriate to opt out. This is preferable to compulsion,” he said.
He argued that, for easy implementation by employers, workers of all ages and pay levels should be included “rather than requiring complex and costly filtering of eligible employees”.
Road map
While the auto-enrolment plan has yet to go to public consultation, the Government appears to favour a scheme that would only kick in at certain pay levels and above a certain age.
State Street also supports the plan to automatically increase contributions over time to allow workers, and employers, get used to the new scheme.
“In the end state, total contributions will need to be somewhere above 10 per cent, but not so high as to drive people to opt out,” Mr Byrne said.
An illustration in the published road map document suggests an eventual contribution level of around 14 per cent of salary – 2 per cent from the State and the remaining 12 per cent split evenly between worker and employer.
Mairéad O’Mahony of benefits consultant Mercer also welcomed the report. “In particular, the stated intention of introducing an auto-enrolment regime from 2022 is a crucial development to ensure we address the inadequacy of private pension savings, with less than 50 per cent of private sector workers currently saving for retirement,” she said.
“The timelines set down are ambitious but achievable.”
