Under the draft proposals, employees, aged between 23 and 60, earning over €20,000 per annum and not already contributing to supplementary pensions will be automatically enrolled in the new system from 2022; employees will be free to op-out of the system at the end of a minimum membership (during the 7th and 8th month of membership); minimum contributions will be 1% of earnings, increasing by 1% per year to 6% from year six; and employers will be required to match (tax deductible) these contributions to an earnings ceiling of €75,000.
In its response, Ibec has argued that the success of the auto enrolment (AE) scheme will depend on achieving the correct balance between employees developing a savings habit and income adequacy in retirement. The recent UK experience suggests that in the early stages, the balance should be firmly directed towards developing a savings habit. Therefore, it argues that AE employee and employer contribution rates should be set at 1% for the first three years, 2% in year four and 3% in year five. The maximum contribution of 3% after five years should be followed by a review.
Ibec also argues that there should be a minimum waiting period of six months before employees are automatically enrolled into the AE system. Employees that already have access to an occupational retirement savings plan, where the employer is contributing more than the AE minimum, should not form part of the target membership. Employers offering these occupational schemes should be exempt from participating in AE.
The Ibec response to the Government’s consultation is available here.
Wednesday, 28 November 2018