Podcast Ep 205: As every employer in Ireland should be aware, auto-enrolment is coming. We talk to Mark O’Connor, Head of Corporate Pensions, and Bobby McDonnell, Corporate and Pensions Risk Manager at Bank of Ireland, about what employers need to do to prepare for when auto-enrolment comes into force.
There are currently more than 750,000 people without a pension in Ireland. Often the date of retirement can loom into view and for too many, very little preparation has been made for an income post-retirement. And while many assume the old age pension from the State will be there to support them, it may be too little to support their lifestyles and there is no guarantee it will still be around for future generations when they reach retirement age.
Auto-enrolment will be mandatory for employees. From what we know so far about proportions, for every €3 contributed by employees, employers will match that and the State will add an additional €1. This will be for a minimum of 1.5% of gross pay in the first three years rising to 6% in year 10.
“We are unfortunately one of the last OECD countries to introduce some form of mandatory pension contributions for people who are not already part of a pension scheme, and auto-enrolment should be welcomed from that point of view. It rights a great wrong”
While the nation awaits legislation to be passed into law, the intention is to have auto-enrolment up and running before the end of 2024 or by early
Ireland is an outlier in Europe in terms of the auto-enrolment process and as the population ages, the reliance on the State pension is coming under increasing pressure for Government to fund it into the future.
The idea behind auto-enrolment is to encourage those that aren’t currently saving for their retirement years to start now.
Only 46% of the Irish population are saving into a pension scheme currently, according to Bank of Ireland research, leaving 54% of the population unprepared for their retirement.
The time to prepare is now
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The ThinkBusiness Podcast spoke to Mark O’Connor, Head of Corporate Pensions, and Bobby McDonnell, Corporate and Pensions Risk Manager at Bank of Ireland, about what employers need to do to prepare their staff and their business for the onset of auto-enrolment.
O’Connor explained that employers regardless of size, scale or sector must now consider how they are going approach and fund auto-enrolment.
“We are unfortunately one of the last developed OECD countries to introduce some form of mandatory pension contributions for people who are not already part of a pension scheme, and auto-enrolment should be welcomed from that point of view. It rights a great wrong.”
He says that rather than viewing it as an additional cost for people, the right way to think of it is to compare it to the popular SSIA schemes of 20 years ago where people saved for a defined period and the Government provided €1 for every €3 saved. “Auto-enrolment is quite similar except over a longer term. Employees will contribute 1.5% of their income and their employer will match that and for every €3 the Government will add €1. So it’s effectively a form of tax relief.”
O’Connor said that the intention of this is that the pension pot will grow over a long period of time and as employees change jobs their pension pot will move with them.
How to prepare for auto-enrolment
So how should employers be preparing for the onset of auto-enrolment?
O’Connor said that for employers with an Occupational Pension Scheme already in place they should now be getting advice on whether or not their current scheme is fit for purpose. If not, changes will need to be made to their existing plan or they can take out a new plan.
His colleague Bobbie McDonnell agreed and said that employers need to be preparing for auto-enrolment now. “Employers need to get information, to know what the potential impact of this will be if and when it rolls out in early 2025.
“This boils down to budgeting for it if they don’t already have a scheme in place, if they do have a scheme in place what do they need to do to tweak it to meet the requirements of auto-enrolment.
He said that for those not currently offering a scheme, they’ve two options: 1) Do nothing and wait for when Auto-Enrolment comes into force. Or 2) seek out advice now on your options from a reputable provider to set up a private pension scheme for your company.
“They need to ensure that it’s going to match up with their employees’ overall benefits package. That’s a key requirement that we are seeing from boards right now; it’s all around engagement and getting as much information as possible,” McDonnell said.
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