Companies are looking at ways of signing all their employees up to existing occupational pension schemes rather than engaging with the new auto-enrolment scheme.
The Government plans to activate auto-enrolment – a compulsory workplace pension scheme – next year for all employees between the ages of 23 and 60 who are earning in excess of €20,000.
The new arrangements are expected to impact most in the retail sector where, according to Irish Life, the average participation rate in occupational schemes can be as low as 10-20 per cent. However manufacturing, where the participation level is about 50 per cent and professional services where the numbers vary widely depending on sector and company, could also be significantly affected.
The sectors with the strongest occupational pension coverage currently are pharmaceuticals and technology where participation rates can be as high as 90 per cent, helped in part by a strong multinational presence.
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Overall, Irish Life says, average anticipation rates among the 100 large and medium employers it consulted were about 80 per cent.
Shane O’Farrell, director of corporate partnerships at Irish Life, said 98 per cent of the companies it spoke to had some form of pension gap – employees who are not currently covered. This can be for a number of reasons, including that they might by serving common waiting periods before they can access such schemes.
They may also have opted out for any number of reasons, including high-paid staff who may be managing their affairs to ensure they do not breach the standard pension fund threshold above which they face punitive levels of taxation.
Others might be employed on short-term contracts, be below the minimum age for certain occupational schemes or have contracts that specifically preclude pension scheme benefits.
“The definition of an employee in the legislation is so wide that inevitably almost all companies, even those who assume they have no issue, will find that they have gaps,” said Mr O’Farrell. As currently framed, he said, the legislation could even force companies to sign their non-executive directors into a workplace pension scheme.
Having consulted many of Irish Life’s clients, Mr O’Farrell said a number of approaches were currently under consideration by employers.
One would involve opening existing plans to all staff not yet signed up on an opt-in basis. Another would be to allow those not covered by existing arrangements to opt into existing occupational schemes but at auto-enrolment-type rates, an exercise that would create additional pressure on payroll departments.
A third option being examined is for employers to draft all staff into their existing schemes on a mandatory basis, initially with only the employer making any contribution. That is seen as fulfilling the requirements of the auto-enrolment legislation currently going through the Oireachtas.
Efforts would be made subsequently to persuade enrolled staff of the merits of making their own contributions to the scheme.
“What companies were hoping was that you could opt people into an existing good occupational plan,” Mr O’Farrell, “but that is not allowed in the Bill as it is worded.”
Eighty per cent of those consulted were looking at using accommodating everyone in their existing plans in some way. And a straw poll at a recent Irish Association of Pension Funds conference backed up that finding, with 91 per cent of attendees backing one or other of those options and fewer than one in 10 planning to do nothing, simply operating the new auto-enrolment scheme in parallel with their current arrangements.
In most cases, existing occupational schemes would offer more generous contributions than will be made under auto-enrolment, at least initially. They also offer more favourable tax benefits, according to Mr O’Farrell, and can be more flexible in their approach to retirement than the proposed new scheme.
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