Jun 11, 2024

Flaws in Auto Enrolment Should Be Addressed Before Introduction

• The planned Auto Enrolment (AE) system has unprecedented power to enrol members regardless of whether AE or a private occupational pension would be in their better interest

• Lack of parity of obligations between existing occupational schemes and new Auto Enrolment system – AE will be held to lower standards than the existing private system, it will be the largest retirement system in the state, it will not be IORP II compliant.

Insurance Ireland welcomes the introduction of the Auto Enrolment  (AE) system but says flaws remain to be addressed, or at least clarified in advance of implementation, in order to provide consumers with adequate protection and parity with existing occupational schemes.

Issues include the unprecedented powers of AE to enrol 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 enrol 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 that the new AE system will require employees to be enrolled from day one of their 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 advantageous to the individual.  There is no clarity as to how this can be facilitated in terms of transferring benefits, etc.

A key issue 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 the proposed AE system will not be an institution of occupational retirement provision (IORP) or a Master Trust or indeed, a pension, and 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 Automatic Enrolment Retirement Savings System Bill 2022, unlike the private pensions market, which is subject to a wider range of legislation.

Insurance Ireland also says there remain issues 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 the AE system.

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 that the retirement benefits of the day will apply, however, the wording is such that it gives an impression that the benefits are yet to be decided upon.

Speaking about the introduction of AE, Moyagh Murdock, CEO of Insurance Ireland said “In reality there will be a significant overlap with the current pension landscape as people move through their working lives.  Overall, the new AE system will increase coverage in retirement savings in Ireland, but it will also bring additional complexity for consumers, and comes with no provision for financial advice.  Webelieve a number of obvious shortcomings need to be addressed as a matter of urgency, so that individuals are not limited during their working lives by thresholds and restrictions that do to apply to occupational pension schemes, and vice versa.

The introduction of AE is a significant undertaking for the State and it is important that all of the issues are understood and clarified before it is implemented. With so many questions still unanswered and so many employers unaware of what’s involved, the timeline to introduction seems ambitious and the Department of Social Protection should be strongly encouraged to give employers and their advisors adequate time to plan.”