Insurance Ireland has welcomed the approval by Cabinet of proposals to introduce an Auto-Enrolment pension scheme for private sector workers who do not currently have a supplementary pension.
In 2013, a Government-commissioned OECD review of the Irish pension system recommended the establishment of a universal pension model for Ireland. The review concluded that Ireland has a unique opportunity to apply what has worked in other OECD countries to support those saving for a pension, and that Ireland should seek to ensure that not only are there more people saving for a pension but that they save enough for a comfortable retirement. According to the CSO, in 2018 47.1% of workers between 20 and 69 were contributing to a pension. Rates in the 25-34 age group stood at 37.1% in 2018.
Declan Jackson, Director of Government Affairs with Insurance Ireland stated; “Given our savings rates, demographics and the increasing number of people who will rely solely on the state pension, Auto-Enrolment is a key policy tool to increase pension coverage and help people plan for their retirement.”
“The international experience is clear. Following the introduction of Auto-Enrolment in the UK, the number of people with an active workplace pension went from 47% in 2012 to 73% in 2018. In New Zealand, from 2006 to 2016, the roll out of Auto-Enrolment helped increase pension coverage from 32.7% of all workers (public and private) to 80%. We need to have the same ambition in Ireland and now is the time to draw from international best practice and implement this policy. Strategies to support gender equality in retirement income should also be a key design feature of public policy and international experience can be helpful here.”
“Once automatically enrolled into their personal pension scheme, the evidence shows most people keep saving for retirement. Insurance Ireland believes a goal should be set to have 70% of those in employment saving for retirement by 2030. To support this, it is critically important that pensions policy is based on consistency, equality, simplicity and adequacy of income in retirement.”
Declan concluded, “Auto-Enrolment is a once in a generation change to our pensions policy and will benefit Irish workers long into the future. Insurance Ireland looks forward to hearing further details about the policy and a timeline for its implementation.”
Q & A:
1. Why do I need a pension?
a. Salary and wages finish once a person has retired from work. Bills do not finish on retirement.
b. From the date of retirement, pensioners are reliant on accumulated savings (if they have any), a pension plan (if they have saved into one) and the state pension to pay the bills
2. How does a pension work?
a. A pension is a long-term savings scheme which allows workers to save for their needs in retirement. Typically, the pension saver will see their savings grow based on their contributions to a fund and any investment growth in the fund. Usually, their employer will also contribute to the fund (this is referred to as the employer contribution or the match), and the Government will incentivise the saver, typically in the form of tax relief. A pension provider will administer the fund (often referred to the saver’s ‘Pension-Pot’ – collecting the savers and employers’ contributions, investing the funds in workers’ chosen funds and liaising with the state authorities (e.g. Revenue, Regulators). The individuals pension pot becomes available on retirement to provide some or all of their needs when they are no longer working.
3. What is Auto-Enrolment?
a. Auto-Enrolment represents an important policy development designed to increase pensions coverage. In this system, and subject to an opt-out option, workers will automatically be enrolled in an individual savings scheme whereby their personal contribution will be matched by that of their employer, with the Government contributing an additional amount to further incentivise the worker’s commitment. The accumulated fund will be available to the worker on their retirement.
4. Why is it being introduced in Ireland?
a. As a nation, we are getting older. Ireland is predicted to have more than 1.4 million people over the age of 65 by 2046. By 2046, the 65+ dependency ratio could be double what it was in 2011. The implications for the pensions system are stark – whereas today there are five taxpayers supporting the payment of the state pension to each pensioner, by the middle of the century there will only be two. Against a background where the state has committed to maintaining the state pension at 34% of average earnings, hard choices will have to be made about taxation levels and state spending priorities.
b. Ireland needs more people saving for their needs in retirement (coverage) and many of those who do are not saving enough to preserve their living standards (adequacy). The introduction of Auto- Enrolment is one key element of the Government’s Roadmap for Pensions reform.
c. When one talks about pensions, two related concepts are important. Firstly pension ‘Adequacy’ defined as the amount an individual needs to support their requirement in retirement. Secondly pension ‘Coverage Rates’ – the proportion of the working population who are contributing to a pension plan.
d. Gender pensions gap. The gap in earnings between men and women is 14%[1], while the gap in pensions is 37.5%. [2]Particular attention must be paid to this in any policy initiative.
e. Based on Statistics from the CSO in 2018, Ireland’s Coverage Rate overall is 47.1%. This suggests that absent any change, more than half of all those in work will be reliant on the State Pension to sustain their standard of living in retirement.
5. Do other countries face similar pension challenges to Ireland?
a. Yes – Ireland has the ability to learn from what other countries have done in the past to build on their pensions coverage rates. Writing in 2013, the OECD asserted that Ireland’s coverage rate “is similar to those observed in other OECD countries with voluntary private pensions systems but lower than those observed in countries with mandatory or quasi mandatory systems” (OECD, Review of Pensions Systems – Ireland 2013, p.47.)
6. What does the international evidence say?
a. Ireland can benefit from last mover advantage to build participate and coverage levels based on the principles of consistency, equality, simplicity and adequacy.
b. Pension saving is and always has been the right thing to do but we can learn from best international practice.
c. Following the introduction of Auto-Enrolment in the UK, the number of people with an active workplace pension went from 47% in 2012 to 73% in 2018
d. In New Zealand in 2006, the year before the roll out of Auto-Enrolment, 32.7% of all workers (public and private) had access to a pension scheme. At the end of 2016, the New Zealand ‘Kiwisaver’ system had 80% coverage.
7. What is the timeline for implementation?
a. The Government has previously signalled that Auto-Enrolment would be introduced by 2022.
8. What are the trends in pensions saving rates in Ireland? How many workers are currently contributing to a pension?
a. According to the CSO, in 2018, 47.1% of workers between 20 and 69 were contributing to a pension, marginally up from 46.7% in Q4 2015. Rates in the 25-34 age group stands at 37.1% in 2018, up slightly form 36.1% in 2015 and significantly lower than the 48.9% rate in Q1 2008.
9. Does the insurance industry think this policy will work?
a. Yes, the introduction of Auto-Enrolment is a critical element of the of the Pensions Roadmap and should see a welcome increase in coverage levels. Insurance Ireland believes a target of 70% of those in employment saving for a supplementary pension by 2030 should be formally adopted supported by the principles of policy consistency, equality, simplicity and adequacy of Income in retirement.
10. Why do we need to introduce Auto-Enrolment?
a. Saving for a pension is hard, there are always other priorities and household budgets are stretched. However, a pension is vital to ensure that we can all enjoy a comfortable retirement. Auto-Enrolment has worked in other countries and we believe it can, if carefully designed can work in Ireland. People tend to find pensions hard to understand and even more difficult to commit to, an automatic enrolment system is the best way to get over these issues.
Notes to Editors:
1· In 2013, a Government-commissioned OECD Review of the Irish Pension System recommended the establishment of a universal defined-contribution pension model for Ireland that would ultimately cover all Irish workers
2· In 2016, Insurance Ireland produced a report, A Universal Pension for Ireland which looked at pensions systems such as those in New Zealand, Australia, The UK, The United States, The Netherlands and Chile to identify which aspects of each can be deployed to meet Irish policy requirements. It can be accessed at: https://www.insuranceireland.eu/media/A%20Universal%20Pension%20for%20Ireland.pdf
3· In 2019, Insurance Ireland produced a further report, A Universal Pension for Ireland – 70:30 which can be accessed at: https://www.insuranceireland.eu/media/Publications/InsuranceIreland_UniversalPension_7030%20Release%20Final%20(004).pdf
4· As the Voice of Insurance in Ireland, Insurance Ireland members manage €82.4bn in pension assets on behalf of over 1m Irish workers and provides the benefits of a leading-edge Defined Contribution infrastructure