Opt-outs could threaten Irish automatic enrolment
Written by Sunniva Kolostyak
The Irish auto-enrolment proposal is still not good enough and could be harmed by opt-outs after the launch, according to State Street Global Advisors (SSGA) and the Irish Association of Pension Funds (IAPF).
The proposed automatic enrolment strawman in Ireland has outlined a limited opt-out section for newly enrolled members, lasting between seven and nine months, which the industry is questioning.
SSGA Ireland managing director and head Ann Prendergast said during a panel debate at the IAPF Annual Benefits Conference that if people choose to take advantage of the opt-out option and get a snowball rolling, automatic enrolment’s reputation will be damaged.
“The fact that if you do that then the opt-out rate increase and that creates a PR issue for the whole system,” Prendergast said.
IAPF CEO Jerry Moriarty said that in the UK, people can opt out any time, resulting in a low number of people choosing to leave.
“I think there is a danger that possibly having made that decision where it can’t be reversed may increase the opt-out rate, and it is certainly designed trying to keep as many people in as possible. I think that is something we will have to look at closely.”
The proposal, set to launch by the end of 2022, suggests that automatic enrolment will apply to employees aged between 23 and 60, earning over €20,000.
Contributions will start with employers and employees both paying 1 per cent, rising to 6 per cent over six years. In addition, the government will contribute between 0.33 and 2 per cent.
The employee either chooses provider, or the Central Processing Authority will circulate between four providers, with a maximum fee of 0.5 per cent.
Prendergast said that of the people in the workforce who are currently not enrolled in a scheme, around 860,000, only half would qualify. “Just in terms of those numbers, coverage doesn’t seem to be going far enough.”
“Having a lower rate than 20,000 is probably something that we would challenge because you don’t take account of people who are in a two-income household and some people have more than one job.
“The fact that people who are on a low salary now, at some point they are going to earn more and we should try and normalise that saving habit as early as we possibly can,” Prendergast said.
IAPF also questioned the taxation on savings as it has until recently been unclear how it would work. “What hasn’t been made clear before is that the intention is that there's no tax on the benefits coming out,” Moriarty said.
“There’s no tax on the investment or the benefits coming out, and that is very different to the current system we have.”