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Delivering on a commitment made in the Government’s Roadmap for Pensions Reform 2018-2023 (Action 2.1), the Minister for Employment Affairs and Social Protection Regina Doherty T.D. today (22nd August 2018) launched a public consultation process and a Strawman proposal for a new ‘Automatic Enrolment’ Retirement Savings System in Ireland.
The Reform Plan launched earlier this year confirms that Government will introduce Automatic Enrolment (AE), by 2022, as a State sponsored supplementary employment related retirement system. It is intended that those saving in the AE system will be supported by both employer and State contributions. Whilst workers will have the freedom to opt-out should they so choose, experience in other countries indicates that once automatically enrolled workers tend to remain within the system.
Commenting at the launch the Minister confirmed that
“Automatic Enrolment (or AE) is perhaps the most fundamental policy reform in a generation in terms of retirement savings provision. The new Auto Enrolment system will, when implemented, enable people to save and accumulate sufficient assets to maintain better personal living standards in their retirement. In this way, the combined use of public pensions and private retirement savings allows employees, employers and the State to each play a part in addressing the provision of improved retirement incomes.”
In launching the Automatic Enrolment ‘Strawman’ for public consultation the Minister said
“I am very pleased to launch today the public consultation for Automatic Enrolment and share with you a Strawman proposal prepared by my Department. The Strawman proposal is a high level draft designed to prompt and generate discussion and improve ideas. It should not, in any way, be construed as Government’s confirmation of what form Automatic Enrolment will ultimately take. As we work to achieve the overall objective of improved income adequacy for our future retirees, our goal in preparing this Strawman is to help interested parties conceptualise possible approaches to AE and to facilitate a focused debate around key design issues.”
The Minister confirmed that
“The feedback received during this consultation process from private individuals and representative groups is very important and will be used to inform Government and assist in determining the framework design of the preferred operational structure for the Automatic Enrolment system. To help us ensure the new system is the best we can make it, I would strongly encourage the participation of all interested parties in this national consultation process.”
The Roadmap for Pensions Reform 2018-2023 encompasses major reforms of future State, private and public service pension provisions. The Government has confirmed the State pension is, and will remain, the bedrock of the pension system and a protection against poverty. However, the State pension is not designed or intended to deliver full income adequacy in retirement. To achieve such an outcome, it is recognised that most employees should supplement their State pension income with personal retirement savings. Yet just 35% of the private sector workforce has private pensions coverage and Ireland is one of only two OECD countries without a mandatory earnings related element to retirement saving.
To this end, the Minister noted “It is increasingly evident that most Irish workers are not saving enough, or indeed at all, for their retirement years. Many people will be faced with a serious reduction in their living standards when they retire – a fall in income they clearly do not want. Having examined the options and looked at international experience, the Government previously decided that a new Automatic Enrolment supplementary retirement savings system, where the individual retains the freedom to opt-out, is the best approach to take. “
The Strawman proposal for a new Automatic Enrolment Retirement Savings System together with other support documents is available on www.welfare.ie/consultations. To give those who may want a quick and easy access to the proposals, a summarised 'Plain English’ version of the Strawman has also been produced.
The consultation period will remain open until the 4th November 2018 and responses should be forwarded by email to autoenrolment@welfare.ie. While submissions in electronic format are strongly encouraged, those who wish to make a written submission can write to:
In addition to this formal response mechanism, the Government will host consultation fora in Dublin, Cork and Galway at which interested parties will be able to contribute views and ideas. Further details are available on the Department’s website.
To ensure Government is fully aware of the views of those who will be most impacted by Automatic Enrolment i.e. the likely membership, dedicated ‘Focus Groups’ will also be undertaken to draw together potential members of the system to identify preferences regarding the structure and operation of the Automatic Enrolment system.
ENDS
Note to Editors:
The Strawman should not, in any way, be construed as a confirmation of what form Automatic Enrolment will ultimately take. Readers should not take the key features as definitive. It is a high level draft intended to generate and prompt discussion and improve ideas. The intention is to help interested parties conceptualise plausible approaches to Automatic Enrolment and to facilitate a focused debate around key design issues and how to address income adequacy for retirees.
See Roadmap for Pensions Reform 2018-2023 Strand 2 ‘Building Retirement Readiness for details relating to Government’sproposals relating to the development and implementation of a State sponsored supplementary retirement savings system in which workers will be automatically enrolled.
What is Automatic Enrolment Retirement Saving?
Automatic Enrolment (AE) is where employees who do not have a private pension are ‘automatically enrolled’ into a retirement savings scheme, but can leave it if they so wish.
What is a Strawman proposal?
A Strawman proposal is a high-level draft intended to generate discussion and to prompt suggestions. It is not ‘the’ answer but it is one possible answer.
The Government will make final decisions regarding the operational and design characteristics for AE after the completion of public consultations, detailed further evidence building, and a macro-economic impact assessment to further inform our analysis. Depending on feedback received, and further analysis to be completed, the final design may closely resemble the Strawman or may vary significantly from it.
Why is the Government proposing to introduce Automatic Enrolment?
Approximately two-thirds of all employees in the private sector do not have a pension and are not setting aside savings of their own for retirement. This means that many of these people will see a reduction in their living standard at retirement that they clearly do not want. Other countries that have brought in AE have seen large increases in the number of people saving for retirement. This Government intends to introduce AE in Ireland from 2022 to improve the financial readiness of future generations of retirees and to support individuals in saving for their retirement.
2022 - Why is it taking so long to bring in this reform?
A review of those countries which have implemented AE has provided indicative reform timelines. In implementing AE, New Zealand largely opted to utilise existing infrastructure and took 3 years to develop its ‘Kiwi-saver’ system. Sweden and the United Kingdom on the other hand opted, to varying degrees, to develop new infrastructure and took 6 and 10 years respectively to implement AE.
This project timeframe reflects the scale of such a programme and its importance as being the most fundamental reform of the Irish supplementary pension system in generations. The Government is also providing a clear statement of our intent and direction for the future to allow for the necessary planning to take place at enterprise level.
Will Automatic Enrolment affect my State pension?
No – Automatic Enrolment will not impact on the State pension which is, and will remain, the bedrock of the Irish pension system. That is why the Government gave a long term commitment in the ‘Roadmap for Pensions Reform 2018-2023’ to maintain the State pension at 34% of average wages. Maintaining the value of the State pension in this way will benefit individuals by allowing for greater certainty in financial planning and improved confidence about the level of any private retirement savings required to supplement their State pension.
Why not just increase the State pension?
While the Pay As You Go State pension provides a basic and effective protection against pensioner poverty, it is not designed or intended to secure a high level of pension adequacy. As the ‘first pillar’, the State pension should, in most cases, be combined with individual retirement savings in the form of ‘second pillar’ occupational pensions and/or ‘third pillar’ personal pensions. In this way the combined use of public and private pension savings allows employees, employers and the State to each play a part in addressing the provision of retirement incomes.
Private savings arrangements are voluntary and generally aim to secure a payment level in retirement that, when combined with the State pension, replaces a sufficient proportion of an individual’s pre-retirement earnings so as to enable the individual concerned to maintain a reasonable standard of living after retirement.
Why doesn’t the State establish a large scheme rather than using the private sector?
Again, the Government is not confirming the manner in which AE is delivered, it is consulting on how AE should be delivered.
While the Strawman supposes a limited number of private ‘Registered Providers’ selected through a tendering process, we would welcome the submission of any views relating to the delivery of a State option so that when we have to make decisions on the actual model, we will be as fully informed as possible on all of the options.
Can employers opt out of the system?
No. Employers will not be able to opt out of their obligations to enrol eligible employees under the system.
Will employees already with pensions be covered by AE?
The system is intended to address the needs of those who are currently without supplementary retirement savings. AE will not impact on employees who already have pension coverage which meets, or exceeds, any minimum standards required by the system.