The Irish government has announced a major overhaul of the pensions system, which will see the introduction of auto-enrolment from 2022.

Unveiling its Roadmap for Pensions Reform 2018-2023 report, yesterday 28 February, the government said from 2022 workers will be automatically enrolled in a state sponsored supplementary employment related retirement savings system.

“It is intended that employee savings in this scheme will be supported by employer and state contributions. Under the system, workers will have the freedom to opt-out should they so choose, however experience in other countries indicates that once automatically enrolled workers tend to remain in the system. It is hoped that the same experience will be repeated in Ireland,” the report said.

In addition, the government has said it will reform the state pension, including the total contributions approach (TCA). The government plans to introduce a TCA from 2020, for the state pension (contributory). “The TCA approach provides a more logical and transparent system, where the pension paid to an individual will more accurately reflect the number of contributions paid. It is intended that a TCA design proposal will be published for public consultation in Q2 2018 with the TCA design being finalised in Q4 2018 for enactment in Q1 2019 and to take effect from 2020,” the report explained.

Secondly, the government has proposed to maintain the value of the state pension (contributory) payments at a level of 34 per cent of average earnings. Towards this end, it is intended to bring forward proposals to link future increases in state pension payments to changes in the consumer price index and/or average wages. In addition, there will be no further increase in state pension age before 2035 (beyond the increase to 67 and 2021 and 68 in 2028 already legislated for) and any future changes in the state pension age after 2035 will be linked to increases in life expectancy.

In order to ensure that changes to pension payments are balanced with changes to how pensions are funded, the government also intends to publish a consultation paper during 2018 on an appropriate approach to funding the social insurance system. The government hopes the reforms will “create a fairer and simpler contributory pension system where a person's pension outcome reflects their social insurance contributions, and in parallel, create a new and necessary culture of personal retirement saving in Ireland".

Making the announcement The Taoiseach Leo Varadkar said: "Thankfully, we are all now living longer and many children born in Ireland in 2018 will live to be over 100. This is a very welcome development. Nonetheless, a population that is living longer brings with it its own policy challenges, not least in terms of social insurance and in ensuring the future sustainability and security of the State pension system."

"It is important and timely that we now move to establish a more equitable and transparent state pension system. To do this, we will put in place important pension reforms and also promote better levels of private pension coverage to help supplement future retirement incomes. In combination, these measures will deliver us with a fit for purpose pension system for future generations of pensioners in Ireland". He added that pension reform has been an important objective for him since his time as Minister for Social Protection.

“When I announced my new government to the Dáil last June, I highlighted this as a priority area. The system is facing a number of challenges in relation to population changes, income adequacy in retirement and ensuring the sustainability of the government finances. The task of financing increasing pension spending will fall to a diminishing share of the population as demographic projections indicate that the ratio of people of working age to every person aged over state pension age will reduce from its current rate of 4.5 to 1, to just 2.3 to 1 over the next 40 years."

In addition to these major reforms, the government will also take measures to improve transparency and confidence in the operational environment for private pensions and improve scheme governance and regulation.

The Minister for Finance and Public Expenditure and Reform Pascal Donohoe said: "This roadmap represents a comprehensive approach to reforming pension provision in Ireland. It confirms the standing of the state pension as the bedrock of the pension system and lays out a set of actions to both increase supplementary pension coverage and increase the amount set aside for pensions in a transparent and structured way. All sectors of society have an interest in securing adequate income in retirement for our people, and the introduction of auto-enrolment will help to achieve this. Pension reform will also help to underpin long-term economic and fiscal sustainability.”

Commenting on the reforms, the Irish Association of Pension Funds CEO Jerry Moriarty said: “The IAPF, and the pensions community in general, welcome this announcement, and are very supportive of the government’s plans to deliver significant reform for pension savers.
There is wide-spread agreement that the introduction and development of a universal retirement savings plan is imperative to ensure that our ageing population doesn’t suffer from poverty in retirement.

“The pensions community has been crying out for a simplification of pension and tax rules for some time. There are currently too many rules which confuse and frustrate those attempting to save for retirement. We are hopeful that these reforms will deal with much of this unnecessary complexity. The change from defined benefit to defined contribution schemes have placed a lot of responsibility on individuals, so it’s important that they can easily understand the decisions that they need to make.

“While we welcome the assurances given in relation to the state pension, it’s important to ensure that as many people as possible have an additional retirement income source, that will act as a top-up to the state pension. The IAPF believes that Ireland should look to countries like New Zealand and Australia to learn from the well-governed and efficiently run auto-enrolment schemes that already exist in these countries. The mission of the IAPF is to ensure that people in Ireland can have pensions that are secure, fair and simple.”

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