Auto-enrolment plan misses opportunity to tackle gender pension gap – The Irish Times

The government’s recent passage of the Pension Auto Enrollment Law marks a pivotal moment in pension reform, with far-reaching implications for every worker and employer across the country.

For too long, a significant portion of the private sector workforce has lacked a good pension plan, leaving them vulnerable when they retire. As a result, one in three workers currently has no private pension.

The new scheme, first mooted 18 years ago, provides long-awaited clarity on how and when automatic pension enrollment will finally be brought to life.

From the sector’s perspective, that certainty will be crucial. As we all live longer and face higher pension costs, people will increasingly rely on private and occupational pensions.

The planned introduction of automatic enrollment from January will now bring almost 800,000 people aged 23 to 60 firmly into the pension safety net. The new scheme, as currently envisaged, provides for matching employer contributions and a state supplement of €1 for every €3 the employee saves.

At Aon Ireland we support the benefits of auto-enrolment and how it represents a unique opportunity to create a fairer and more equitable pension system.

However, the current scheme still misses the opportunity to further address the gender pension gap that has emerged over time. While more than half of men receive a private pension, fewer than one in three women receive the same benefit.

It is critical that auto-enrollment is easy to understand and communicated effectively to every employee

This is made worse by the fact that in the past women were more likely to take time out to raise children or care for a family member. This significantly reduces their chances of earning some of that income and converting it into retirement savings.

The auto-enrolment bill is expected to provide a pension for workers who do not currently have one and who earn more than €20,000 per year. The reason for this income limit clearly lies in the lack of affordability for lower-paid workers. However, a further lowering of the income threshold would have ensured that more workers – and likely more women at lower income levels – were not excluded from the auto-enrolment safety net.

As the bill progresses, other measures should be considered to tackle the gender pension gap once and for all.

For example, more flexible contribution models are being looked at to soften the impact on the pension savings of those who have to temporarily leave work. This could include catch-up contributions upon return.

Another option would be to introduce increased government contributions for savers who take maternity, paternity, parental or care leave. This would provide a more level playing field for those taking leave without employer support.

Implementing automatic pension enrollment in just nine months is undoubtedly also a huge challenge.

Once approved by the Oireachtas, an entirely new pension system will need to be built for a third of the workforce and the National Automatic Enrollment Retirement Savings Authority will need to be set up to administer the new scheme. A panel of four investment firms will be appointed to offer employees different options based on different levels of risk.

With January 2025 quickly approaching, employers will face an uphill battle to implement the complex changes needed. This comes at a time when many sectors, including hospitality and retail, are experiencing a rise in operating costs.

Nearly 800,000 people between the ages of 23 and 60 will now be firmly included in the pension safety net

Despite the costs and other challenges, we should not lose sight of the fact that automatic pension enrollment will help build a more resilient workforce and is therefore good for business.

But what can employers do to prepare for the massive changes ahead?

First consider the consequences of the new arrangement for payroll administration, finance and HR functions. From updating payroll systems and reviewing employment contracts to financial planning, auto enrollment impacts every aspect of business.

Second, employers with existing pension plans must determine whether to expand access to all employees or instead allow employees to participate in the new auto-enrollment plan and weigh the costs.

As we move from design to implementation in just a few months, employers need support to meet this challenge. To ensure successful implementation, the government must minimize compliance burdens and associated costs for businesses.

Amid the transformation of Ireland’s pension landscape, it is crucial that auto-enrolment is easy to understand and effectively communicated to every employee.

The current scheme still misses the opportunity to further address the pension gap between men and women that has emerged over time.

Employers play an important role in informing their staff about the changes ahead. By informing and advising employees at an early stage, companies can highlight the benefits of their own scheme or the benefits of the new system, minimize opt-outs, develop healthy long-term savings habits and increase employee engagement.

But companies cannot do this alone. With seven in ten citizens currently unaware of automatic pension enrollment, there is an urgent need for government, business and worker representatives to work together to solve this blind spot by the end of the year.

The long-term success of auto-enrollment will depend on employee engagement. By working together to close the gender pension gap and actively supporting employers, we can seize the opportunity to create a fairer, more equitable and more resilient pension system in Ireland: one that supports people at the end of their working lives guarantees a dignified and safe retirement. .

Mairead O’Mahony is head of human capital at Aon Ireland