Experience abroad demonstrates benefits of auto-enrolment

When it comes to innovation, sometimes it helps to be a laggard. If nothing else, you get second-mover advantage, learning from both the success of others and their mistakes.

“Auto-enrolment has been discussed in Ireland for many years now. It was introduced in the UK in 2012 and has been an active topic for discussion in the Irish pensions landscape for some time,” explains Caitriona MacGuinness of Mercer.

“In 2018, the government issued a consultation paper which received a significant response and challenge across the industry, and at this stage a rollout in 2022 was proposed. In 2019 an update was issued, clarifying some aspects of the system and proposing a slower rate of phasing in contributions from members and employers.”

While pensions were one of the key issues in the 2020 general election, the focus was on the State pension and retirement age, rather than on the introduction of auto-enrolment. However, it was positive to see auto-enrolment mentioned in the programme for government, she says, albeit with no firm date set out for its introduction.

“We have long believed that the target rollout in 2022 was a challenging timeline, and achieving this target has become more difficult with the impact of Covid-19,” she explains.

For a start, there are many policy and structural questions still outstanding. “We believe there is an opportunity to simplify the proposed system, which would aid a faster rollout. For example, a new tax structure was proposed for the auto-enrolment system, and it would be easier and faster to mirror the current system of tax relief rather than considering a new approach that would unnecessarily add complexity to an already complicated system,” she says.

Processing agency

The current proposal envisages an important role for a central processing agency to manage the auto-enrolment process but no action has been taken to progress setting this up nor budget set aside for it, MacGuinness points out.

“Notwithstanding the challenges, we support the need to introduce auto-enrolment and believe this system has the potential to transform retirement preparedness.”

Ireland faces many challenges on pension provision, with an ageing population, concerns about the cost of providing the State pension and low participation rates across the private sector. “The automatic opt-in nature of auto-enrolment, combined with a gradual increase in contribution rates, will improve retirement preparedness substantially,” she says.

Auto-enrolment pension systems have already significantly improved the pensions landscape in countries that have taken this step.

“Our closest neighbours in the UK introduced auto-enrolment in 2012. Auto-enrolment is considered a success there, with the UK office for national statistics reporting that 77 per cent of UK employees were members of a workplace pension scheme in 2019, up from 47 per cent in 2012.”