There is no doubt that Ireland urgently needs to put in place a system to start to tackle the pensions time bomb that we face. Financing pension spending will fall to a diminishing share of the population as the ratio of people of working age to every person of pensionable age will reduce from its current rate of 4.5 to 1, to just 2.3 to 1 over the next 40 years.
It is good to see that there is Government commitment to this, and they have proposed an auto enrollment approach, where all employees automatically make pension contributions. It is vital that everyone has their say so that any approach is viable, equitable and affordable for employees and employers.
What the Government has confirmed
The elements of auto enrolment on which the Government is now consulting:
The current proposals would incorporate a starting population of about 410,000 employees.
The Government has not made any proposal to connect increasing employee contributions to pay increases, or to supports to enable struggling small enterprises to engage in the scheme. The overall proposals will not improve the situation for many women who continuously work less hours than men, earn less pay and hence are more likely to be excluded from the scheme (income less than €20,000 per annum), and benefit less from lower pay-related contributions. There is mention of the lower ‘replacement rate’ for those on low income (the income to replace pay in retirement) but this does not present an acceptable rationale for a vulnerable group. The option of capping the State contribution for those on higher incomes or who have built funds to a certain size, and increasing the support for those on lower income are options to be considered.
The consultation document calls out the need for low costs, simplicity and ease of administration from pension providers. This is critical and will be central to success, acceptability and return rate, especially vital for those on lower incomes. We look forward to the pensions’ industry engaging positively with this initiative.
CIPD Ireland will be carrying out a consultation process, and please email your views to email@example.com.
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