Written by Karen Bennett of Brightpay. Auto enrolment was introduced into the UK because people were not saving enough for retirement. And legislation has, for the most part, been successful, with morem than 8 million employees now saving.
Ireland has a similar problem where people are living longer but are not saving enough. The country is now looking to roll out a similar auto enrolment model, as soon as 2020. The Irish prime minister has announced that a workplace pension law will be introduced where employers will auto enrol employees in a pension scheme.
Employees and employers must contribute to the pension pot. It is likely that employers will have to let employees know what their rights are. It has been up for debate as to whether or not to allow employees the option to opt out.
Auto enrolment contributions
In the UK, the initial employee contribution for employees is just 1% with employers additionally contributing 1% to the workplace pension. The contribution rate is due to increase this April to 3% employee and 2% employer contribution. This will further increase in April 2019, representing a 5% employee and 3% employer contribution. Ireland is likely to introduce a similar incrementally increasing method.
The advantages for Ireland
Ireland cannot afford to pay for the growing number of people who are reaching retirement age in the future. So the advantages of a compulsory automatic enrolment system are plain to see. Employees can begin to make provisions to fund their retirement and provide adequate financial security.
The auto enrolment proposal will increase the number of employees contributing to a workplace pension scheme who would have otherwise not started a pension. The UK and other countries have found that the number of employees who have opted out of the workplace pension scheme has been low.
If successfully introduced auto enrolment could prove to be a highly effective retirement savings initiative. Driven by the UK’s auto enrolment success, Ireland looks very likely to accept this as a model to replicate.
Written by Karen Bennett of BrightPay Payroll Software. Exhibiting on stand 33 at Accountex 2018.