Saturday, April 06, 2024

Pension Autoenroment Irish Edition

After at least two decades of being actively considered in Ireland, pension autoenrolment is now being established as part of the Irish policy system, I spoke at the Citizens assembly on pensions in 2018 and outlined the various factors that might need to be considered where a pension auto-enrolment system to be implemented in Ireland. (here is a post on this blog from 2011 discussing a previous version of autoenrolment for Ireland that eventually got stalled). 

Key features of the scheme include: -

1)Phased Implementation

All employees not already in an occupational pension scheme or equivalent, aged between 23 and 60 and earning over €20,000 across all of their employments, will be automatically enrolled.
With the first enrolments set to happen at the start of 2025, the introduction of Automatic Enrolment will be very gradually phased in over a decade, with both employer and employee contributions starting at 1.5%, and increasing every three years by 1.5 percentage points until they eventually reach 6% by Year 10 (2034). This steady phasing allows time for both employers and employees to adjust to the new system.
2)Saving Supports

Matching contributions will be made by employers to those contributions made by employees up to a maximum of €80,000 of earnings. This recognises the value employers gain through their employees having additional security in retirement and assists employees with the cost of accumulating pension savings.

The State will also top up contributions by €1 for every €3 saved by the employee, up to a maximum of €80,000 of earnings. This is in addition to the €3 that will also be contributed by the employer.
This means that for every €3 saved by an employee, a further €4 will be contributed to their retirement savings pot by their employer and the State – that is every €3 contribution by an employee automatically grows to €7 before it is invested.
These employer and State contributions will incentivise people to stay in the Automatic Enrolment system and will reduce the cost to individuals of saving for retirement.

The system will be voluntary but will operate on an ‘opt-out’ rather than an ‘opt-in’ basis.
Eligible employees will be automatically enrolled/‘opted-in’ but will have the choice after six months’ mandatory participation to opt-out or suspend participation.
Employees will have a range of three retirement savings options to choose from at a higher, medium and low risk investment strategy.
Employees who do not make an active choice will be placed in a default investment strategy on a ‘lifecycle’ basis, moving them from the higher to the medium to the lower risk fund in accordance with their age as they approach retirement.

Administrative costs and burdens are to be kept to an absolute minimum for both employers and employees through the establishment of the National Automatic Enrolment Retirement Savings Authority, which will administer the system. Employers will not have to invest in the establishment or procurement of an occupational scheme for their own businesses. They will simply be required to facilitate payroll deductions. Importantly, people moving between jobs will not have to change pension scheme or join a new scheme. They will remain members of the Automatic Enrolment scheme on a ‘pot-follows-the-member’ basis. Services will be provided and supported through an easy-to-use online channel where participants will see their savings pots grow quickly and substantively.

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