Next January, all going well, approximately 750,000 workers in Ireland will start being automatically enrolled into a new workplace pension scheme that will be co-funded by their employers and the State.
The scheme is aimed at addressing the national pension coverage gap. It’s estimated that just 56% of the working population in Ireland has access to a company or personal pension scheme, a figure that drops to as low as 35% for the private sector alone.
A key feature of ‘pension auto-enrolment’ is that your participation is voluntary. So if you are enrolled and you don’t want to be, you will be able to opt-out.
Pension auto-enrolment has proven a powerful and effective tool for governments around the world in their efforts to improve pension coverage for its citizens.
The United Kingdom introduced auto-enrolment in 2012, and as of January 2023 over 10.8 million employees have been automatically enrolled into a workplace pension. To put it another way, the percentage of eligible private sector employees saving into a workplace pension has more than doubled in just over a decade.
However, it’s taken quite some time for auto-enrolment to become a reality in Ireland. So much so, that Ireland remains the only country in the OECD (Organisation for Economic Co-operation and Development) that doesn’t yet operate auto-enrolment or a similar system as a means of promoting pension savings.
It's not as if we haven’t talked about it. Last year, while announcing details of the new workplace scheme, the Minister for Social Protection, Heather Humphrey, said that auto-enrolment had been “part of the national conversation on pensions” for over 25 years.
But a recent survey by the Central Statistics Office suggests that awareness of its impending introduction of the scheme was still low. Only 18% of those respondents who had no pension coverage (outside the state pension) said they were aware of the plan, but nonetheless 65% said that they would stay in the scheme if automatically enrolled in it.
However, part of the low awareness could be down to the fact that there remains a good deal of uncertainty about when the scheme will start. Even now, there are strong signals being sent from both the government and employers that even the current target launch date of January 2024 may not be met. For instance, Department of Finance officials revealed in early 2023 that this target was “somewhat ambitious”.
Furthermore, the scheme, when it begins, will be phased in gradually over a 10-year period. This means contributions will be low initially, to allow employees and employers time to adapt to it, but it also means it will take a decade for contributions to hit the target level of 14%.
While no one doubts that auto-enrolment will go a long way to improving the state of the nation’s pension savings, it does seem like waiting on the launch of this scheme to kick-start your own retirement savings could be a false economy.
So if you have employees who haven’t joined their occupational pension scheme or started a personal pension of their own, it's time to open the pension awareness conversation and encourage people to take action now.
If you're not sure what this news means for you and your people, get in touch and we'll talk you through everything you need to know.