Ibec calls for delay in workplace pension auto-enrolment

Ibec has called on the Government to delay the introduction of a mandatory workplace pension until after the next election. Speaking to a Joint Oireachtas Committee (JOC) on Social Protection, Community and Rural Development, and the Islands on Wednesday 25 January, Ibec Director of lobbying and influence, Fergal O’Brien stressed that Ibec is strongly in favour of auto-enrolment with a focus on targeting low- to middle-income earners.

The Committee was engaging in pre-legislative scrutiny of the Automatic Enrolment Retirement Savings System Bill 2022, the heads of which were approved by Government last year.

Mr O’Brien added that there should be a full two-year lead-in period to the introduction of workplace auto-enrolment from the time the legislation is complete and has been signed into law. Mr O’Brien also observed that there might be challenges around the proposed Central Processing Authority (CPA) which would be tasked with collecting contributions which he noted will increase labour costs alongside other measures, such as statutory sick pay.

Mr O’Brien told the JOC that businesses would be drawing up 2024 budgets within the next three to four months, and that uncertainty about labour costs after that could force them into knee-jerk responses potentially impacting on employment.

Ibec, on behalf of its members, also expressed concern about what the high level of contributions to be made by both employers and employees, currently planned to be 1.5% of salary for each side in the first three years, rising in 1.5 percentage point increments every three years after that, to reach 6% each after ten years.

Background

Government approved the General Scheme of the Auto Enrolment Bill in October 2022. Heads of the AE Bill were then referred to a Joint Oireachtas Committee for Pre-Legislative Scrutiny

Auto-enrolment will see everyone earning over €20,000 a year and aged between 23 and 60 enrolled in a private pension scheme. Up to 750,000 workers are likely to be affected initially when the scheme gets up and running.

The Minister for Social Protection, Heather Humphreys, indicated in January 2023 that she expects the legislation to be in place by the end of this year.

The key features of the Government’s AE system’s design are as follows:

• all employees who are not already in an occupational pension scheme and who are aged between 23 and 60 and earning over €20,000 across all of their employments will be automatically enrolled
• AE will be gradually phased in over a decade, starting in 2024, with both employer and employee contributions starting at 1.5% of gross salary, and auto-escalating every three years, until reaching the maximum contribution rate of 6% from Year 10 onwards
• the employer’s contributions will match those of the employee and the State will also make a contribution at a rate of €1 for every €3 saved by the employee
• those who are auto-enrolled will have the choice to opt-out or suspend their contributions after six-months mandatory participation
• where a member opts-out or suspends their contributions, they will be automatically re-enrolled after two years, after which they may opt-out or suspend again after a further six-months mandatory participation
• a Central Processing Authority (CPA) will be established to manage the AE system. This body will do much of the administrative work and act in a custodianship capacity for participants
• commercial investment companies will compete through an open tender for the role of ‘registered provider’ and will invest contributions on behalf of AE members
• participants will have a range of savings funds to choose from. These will include a default fund for those who prefer not to choose as well as an alternative choice of funds for those who wish to make a more active choice
• drawdown will be aligned with the State Pension age

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