Auto-enrolment is an earnings related, mandatory workplace pensions retirement savings system. Last week the Government launched a consultation to consider what the structure and regulation of auto-enrolment in Ireland should be. The accompanying proposal is entitled 'A Strawman Public Consultation Process for an Automatic Enrolment Retirement Savings Scheme for Ireland' (the "Strawman"). (A "strawman" is business jargon for a draft proposal to generate discussion and provoke new and better ideas). The Government is seeking views on various proposals by 4 November, including the following:
- Centralised approach: the proposal is to establish a government agency called the Central Processing Authority to administer the system.
- Providers: the proposal is to use a tender process to select a small number of providers rather than open it to all pension providers.
- Target membership: the proposal is that employees aged 23 to 60, earning over €20,000 who are not already contributing to a pension, will be automatically enrolled.
- Contributions: levels would be phased, starting at 1% in 2022, increasing by 1% annually until reaching 6% in 2027. An employer would match employee contributions although a salary ceiling of €75,000 is proposed.
- State incentive: rather than tax relief, it is proposed that the State would contribute €1 for every €3 contributed by a member.
- Investment and product choice: there would be a choice of funds for members but also a default fund. It is proposed to limit investment charges to 0.5% of assets.
- Opt-out: the proposal is that members could not opt-out until the 6 month point, with limited opportunities for opt-out thereafter. If an employee opts out, there would be re-enrolment after a defined period (such as three years).
The Strawman is to encourage discussion and debate as part of the consultation. However some elements that are not on the table for discussion are: the timeline of 2022; that contributions from the employer, employee and the State will be required; and that there will be a form of 'opt-out' for employees.
For employers that do not operate occupational pension schemes, auto-enrolment will clearly have a financial impact. In the UK pensions auto-enrolment was introduced on a staged basis, applying to larger employers first. It is not clear if a similar approach will be taken in Ireland. Whether employers with existing occupational pension schemes will automatically meet the auto-enrolment requirements is also not clear. This is not discussed in the Strawman but in the UK experience, schemes had to meet quality requirements to satisfy auto-enrolment. Employers may need to review their scheme rules in due course to see if they comply.