Is the nettle of pension auto-enrolment about to be grasped by the Government? Given its hesitancy on the issue of the age at which people qualify for the State pension, you wouldn’t be so sure. But proposals are now being debated for how the long-discussed auto-enrolment scheme would work in practice, with indications of a long phase-in time to address the key area where this will be controversial – the cost to employers and employees.
Of course the cost to employees is in return for a long-term benefit – some kind of pension to supplement that on offer from the State. And they will be able to opt out. Also, given practice internationally, it is not an unreasonable ask of businesses either.
But if the result is a lower take-home pay for the less well-off, often younger employees, there are clearly political dangers, particularly as at least some of these will have little cash to spare as they are relying on the dysfunctional and increasingly expensive rental market. And many of the businesses involved are the ones hardest hit by the pandemic.
Layer of complexity
So the likelihood is of a long phasing-in period, with contributions starting off at low levels. The proposal to manage the State subsidy via a special saving incentive account-style top-up, rather than tax relief has the advantage of clarity. But it does add another layer of complexity to pensions, already a hugely complicated area. And it will be interesting to see how self-employed people are dealt with.
Will they be allowed to opt in? And will any provision be made for those earning under the income limit for the scheme, likely to be about €20,000 per annum.
An interesting part of the plan is to give a key role to the Central Processing Authority, the arm of the State which will manage the plan. Indications are that this will go well beyond administration and be vital to the operation of the scheme. It needs to use this position to squeeze down the charges applied by the fund managers it hires and bring real competition into the management of the cash.