Insurance Ireland is the representative body for the Irish insurance sector and in that capacity has been engaged in the debate around the upcoming automatic enrolment (AE) system.
While Insurance Ireland has been open about its support of an AE system in Ireland, throughout the design of the system, a number of issues has arisen, which Insurance Ireland believe require further attention before the implementation of the system in 2025.
The introduction of an AE system will complement the existing pensions landscape and allows many Irish workers for making provision for their retirement. We have supported the process with a number of submissions and contributions to the debate on the AE system – including our representation to the Joint Oireachtas Committee last year.
Insurance Ireland was pleased the Department of Social Protection took on board some of our feedback in the recently published Automatic Enrolment Retirement Savings System Bill 2022 (the Bill) regarding consumers’ ability to make complaints, regarding the external adjudication for the AE system, and that issues relating to the data sharing arrangement with the National Automatic Enrolment Retirement Savings Authority (NAERSA) have been addressed.
That said, Insurance Ireland has called on the Department that before the new system enters into application the opportunity should be taken to address to central aspects of the future scheme:
- Strengthen consumer protection regulation to be applicable to the AE system
A key issue with the current AE system is the inconsistency of the regulation of private pension schemes versus the new AE system. It appears AE will be held to lower standards than the existing private system. For example, the Department of Social Protection has confirmed AE will not be an institution of occupational retirement provision (IORP), a Master Trust or indeed, a pension, therefore it is not subject to any existing pension scheme legislation.
While the system will be regulated by the Pensions Authority, the sole piece of legislation that will drive the regulatory oversight will be the Bill, unlike the private pensions market, which is subject to a wider range of legislation.
Insurance Ireland also notes issues remain with the inflexibility of the AE system, chiefly for women and carers, but also in relation to additional voluntary contributions (AVCs) and access to funds at state pension age. Further, those who are paying into a Personal Retirement Savings Account (PRSA) where there are no employer contributions being made, and those who are above the State Pension Age and want to continue to contribute to the AE system, will also face issues with the inflexibility of AE.
- Ensure parity of obligations between occupational schemes and AE
The unprecedented powers of AE to enroll members regardless of whether AE or a private occupational pension would be in their better interest. This arises from an unwillingness to give employers the ability to enroll people into existing occupational scheme, meaning some employers could be discouraged from continuing with a private scheme, even if it is more beneficial for the employee.
Further, AE will have a special overriding status with regard to entry rights. Many private pension plans have strong legal requirements in relation to employment contracts to protect the interest of the employee, but this will not apply to the state-provided AE system.
The fact the new AE system will require employees to be enrolled from ‘Day 1’ of employment is likely to cause significant issues for those wishing to transfer to an employer pension scheme, usually after six months from commencement of employment, where the employer scheme is more beneficial. There is no clarity as to how this can be facilitated in terms of transferring benefits, etc.
Finally, Insurance Ireland believes further clarity is needed on what the retirement benefits will look like when an employee comes to retirement age. The language within the Bill implies retirement benefits of the day will apply, however, the wording is such it gives an impression the benefits are yet to be decided upon.
As noted above, the AE system has the potential to vastly improve the pensions landscape in Ireland and for Irish workers, but it is imperative that the system introduced on Day 1 is the best it can be.