Podcast Ep 209: The time to plan for the cost of auto-enrolment to your payroll is now, urge Mark O’Connor and Bobby McDonnell from Bank of Ireland.
Last month on the ThinkBusiness Podcast, Mark O’Connor, Head of Corporate Pensions, and Bobby McDonnell, Corporate and Pensions Risk Manager at Bank of Ireland, spoke about what employers need to prepare for when auto-enrolment comes into being.
In our latest podcast, recorded just as legislation to set up the auto-enrolment passed all stages of the Oireachtas, O’Connor and McDonnell give employers a checklist of things they need to think about and do to make sure they are ready.
“One way or another, you are going to be making pension contributions for your employees. And that is something that needs to be budgeted for”
The new system is set to begin next year. Tech giant Tata Consultancy Services (TCS) has been named the preferred bidder to administer the system. The company has been supporting the UK’s equivalent scheme since 2011.
Preparing your payroll for auto-enrolment
Auto-enrolment will be mandatory for employees to pay into and for employers to collect. It is understood that 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.
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.
McDonnell said that employers who are proactive around pensions and are actively engaging in discussions around auto-enrolment are looking at it from a staff attraction and retention perspective. But there is also the reality that demographics in the form of an ageing population, low savings and low pension coverage, present a real urgency.
“It’s a ticking time-bomb. All of these push and pull factors from legislation to staff retention are leading us to where we are today where we are heading towards auto-enrolment. And there’s a general awakening of people’s need to have some type of retirement pot or plan in place to give them the lifestyle they’d like to have at a point in time when they’d like to reduce or stop working altogether.”
Think of the benefits
Whether auto-enrolment will be a silver bullet for the looming problem remains to be seen but McDonnell believes it will start the right conversations in terms of pensions.
“The real goal is to get people to start saving for later on in life. We’re in this pre stage of auto-enrolment where everyone is trying to figure out the best route for them. There is a massive thirst for knowledge. Since our last podcast we’ve been inundated with queries from employers as well as people in the market just wanting to know more, what exactly is going to happen and what it is going to cost.”
O’Connor says that employers are braced for the impact auto-enrolment will have on their bottom line along side other outgoings. “At the moment close to half of the workforce have some sort of pension arrangement. The rule will be that if there is no evidence of a pension contribution being paid by payroll, the person will be auto-enrolled.”
McDonnell’s advice to employers is to engage with professionals and gather information. If companies don’t already have schemes in place or need to improve existing benefits, it might also be worth looking at other benefits such as income protection and death-in-service cover. “If you’re going to invest in your employees’ future remember you are also going to be taking away worries they have in the back of their minds as they get older. When I was 20 I didn’t think of these things but now I’m married with children it is a big part of my thought process.
“And when it comes to hiring, prospective employees will want to work with employers that have a benefit structure in place.
O’Connor said that employers need to be pragmatic about the arrival of auto-enrolment. “One way or another, you are going to be making pension contributions for your employees. And that is something that needs to be budgeted for. As an additional cost, auto-enrolment is going to add the equivalent of 1.5% to your payroll initially and it’s only going to get higher.
“It is something that at a practical level needs to be budgeted for now. You need to plan ahead in terms of the cost of this at least and while you’re doing that get some good advice.”
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