The proposed auto-enrolment pension scheme – what can we learn from the UK?

Minister for Employment Affairs and Social Protection, Regina Doherty, announced at the end of October that the Government has approved the creation of a pension scheme which will see all workers aged 23 – 60 and earning over €20,000 per annum automatically enroled, if they’re not already opted into a personal or employer-led pension scheme.

The Minister outlined that, under the scheme, employees will be required to make a minimum contribution of 1.5% and this will increase by 1.5% every three years, reaching 6% in the ninth year. Employers will be expected to match the employee’s contribution.

Auto-enrollment is seen as a viable solution to the pension gap issue, with the National Risk Report 2019, published in August, showing that only 35% of people employed in the private sector were covered by a supplementary pension. The model, or some version of it, is already being rolled out in Australia, New Zealand and the UK among others.

Key points to consider about the proposed scheme:

• Employees can opt out of the scheme after 6 months and draw down the funds if they so wish. But the terms of the scheme dictate that if they remain without a pension plan, they will be automatically re-enroled in the scheme after a three-year period.
• Employees who are already members of a pension scheme/contract that meets the minimum standards and contribution levels set out by the scheme, will not be automatically enroled.
• The Government is yet to confirm its own contribution. Previous iterations of the scheme cited a 2% contribution from the State but this is under review.
• The scheme will not apply to employers who already offer a pension scheme that meets the minimum requirements set out by the scheme.
• There’s been no mention of adjustments to employers’ PRSI – this is something that may concern smaller businesses as the auto-enrolment scheme will result in an increase in cost per employee.

Lessons from the UK

There are those who’ve described the 2022 roll-out date as ambitious. Certainly, roll-out in the UK showed us that there will be a lot for employers to consider before the scheme goes live. All eligible employees will need to be notified in advance, then auto-enroled and it’s not clear what the employer role will be for those who want to opt out after the 3 month mandatory period.

Employers will also also need to look at their terms and conditions, ensuring any necessary changes are made in advance of the scheme coming into effect. One learning the UK took away from their first year is that each employer will have their own unique structure and challenges. Charles Counsell, the UK Pensions Regulator Chief Executive advocates that employers start to plan 18 months ahead as a result of the challenges he saw employers face in the first year of the UK roll-out.

While it’s yet to be confirmed, all indications so far point to a set-up that will mirror that of the UK, so planning ahead will be key for employers.

Good communication with employees was outlined as another possible stumbling block following the initial launch in other countries. So employers should start to look at how they plan to inform their employees well in advance.

In the UK, payroll software now needs to hold additional information about employees such as age and addresses. It’s not clear yet whether this will be required here but again, this necessity along with data regulation is something employers need to consider in advance of the scheme launch.

About the author, Marc Fitzgibbon, Senior Partner, Employment Law Team