Employees favour auto-enrolment in pension schemes

Support for automatically enrolling people in pension schemes is growing in Ireland, according to a new report from State Street Global Advisors.

Eighty per cent of respondents said they would favour a scheme where they are automatically enrolled in a pension when they take up a job. Only one in 10 people asked thought it was a bad idea.

And more than 60 per cent said they would back a scheme that would automatically increase their contributions to such a scheme every year.

The figures are reported in SSGA’s Retirement Confidence Monitor, which tracks attitudes to savings in defined contribution pension plans in the US, Britain and Ireland.

As it stands, people in Ireland are much less confident than others in the likelihood of putting enough aside for retirement, with 39 per cent sure they are "on track" to meet their retirement goals – compared to just 15 per cent in the US and 28 per cent in Britain. More than a third (36 per cent) consider their financial life to be a "mess".

A recent Aviva study on pensions found that, on average, workers needed to put an additional €1,000 a month into their pension savings.

As a result, half of all Irish respondents expect to work beyond the traditional retirement age of 65 – with 42 per cent expecting to do so in full-time jobs.

Cautious

The Irish are noticeably more cautious than their counterparts in other countries, both in their aversion to risk in investment strategy and their likelihood to put some or all of their pension savings into an annuity, which provides a guaranteed income but currently at very high cost.

Alistair Byrne, senior defined contribution investment strategist with SSGA, says the results show continued "concern about their state of preparedness".

While progress has been recorded over the three years, the SSGA study has looked at the Irish market. “Many people are not saving enough, so the introduction of automatic enrolment and automatic escalation of pension contributions should be considered as ways to help more people prepare for retirement,” said Dr Byrne.

The figures suggest successive governments have been overly cautious in their approach to introducing mandatory pensions coverage. Efforts to encourage people through tax incentives and otherwise to save for retirement has had little effect, with the number of people holding private pension schemes hovering stubbornly around the 50 per cent mark.

Dr Byrne says the experience of the UK is that most people enrolled automatically in pension schemes stick with it. However, he counsels against a hard mandatory scheme where people would not have any ability to opt out.

Fairness

Soft auto-enrolment schemes were delivering essentially the same level of cover as a tougher mandatory scheme, around 90 per cent, he said. There was also an issue of fairness as some people’s individual circumstances could mean that they would be better advised to use any spare income to pay down heavy debt burdens, or simply might not have the leeway to put money into savings at certain times in their working lives.

Any introduction of automatic enrolment should be gradual, transparent, simple to understand, offering limited choice and consistent in its application, Dr Byrne said.

One advantage of large pension funds under auto-enrolment, he said, was that charges should be around 0.5 per cent – a lot lower than they have been traditionally in the Irish market.

He acknowledged, however, that auto-enrolment would not be a panacea for all. People who might be missed by such a system include freelance workers in the “gig economy” who do not have a particular employer under whom they can be enrolled in a pension plan.

Increasing work mobility also presents problems for auto-enrolment, Dr Byrne said, with no medium-term prospect of harmonising pension arrangements across national boundaries for workers who move to jobs in different countries.