The Government needs to plan an extensive awareness campaign if it wants the new mandatory workplace pension scheme — auto-enrolment — to succeed, according to a pensions specialist.
Quest Retirement Solutions says at least €5 million should be set aside for a “comprehensive public awareness” campaign, pointing to the success of Government communication a decade ago around lifetime community rating in private health insurance. It is also calling for the scheme to be introduced on a phased basis.
Lifetime community rating was a change to long-established rules for private health insurance. It introduced a premium charge for people who only signed up for private health cover later in life, putting pressure on providers who charge all members the same amount regardless of age or medical risk profile.
The decision to charge a 2 per cent surcharge to premiums for every year a person is over the age of 34 — and for that surcharge to remain in place for the first 10 years of cover — was a big reform with the potential to cause widespread confusion among consumers.
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However, Quest argues that a multimillion-euro campaign rolled out by the Government for a full year before the change took effect was effective, with about 75,000 people signing up for private cover in advance of a deadline.
The pension specialists argue that a similar, if not greater, effort is needed for auto-enrolment given that it is expected to affect far more people. It points to Central Statistics Office data published earlier this year showing that four out of five of those expected to be affected by auto-enrolment were not aware of the Government’s plans.
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Paul Murray, a director at Quest, said there were similarities in the schemes in that both sought to promote “early and sustained participation to ensure long-term financial security”
“The success of these programmes relies heavily on public awareness, administrative efficiency and the perceived value of early participation,” he said. “The public awareness campaign for lifetime community rating was initiated 12 months before the deadline. With less than a year to go before the planned auto-enrolment start date, no such campaign has been undertaken.”
He said the Government needs to ensure workers understand the benefits of auto-enrolment, how it works and why it is important for their financial future. “Clear communication about the scheme’s advantages ... will mean the difference between success and failure,” said Mr Murray.
As it stands, the Government has missed several self-imposed target dates already and there is industry scepticism that any new scheme will be ready for roll-out in advance of a general election.
Auto-enrolment is designed to ensure that every worker between the ages of 23 and 60, who is earning more than €20,000, has signed up for an occupational pension to ensure they have retirement income over and above any State pension. As many as 750,000 workers are expected to be covered by the new rules.
They will initially contribute 1.5 per cent of their gross salary to the scheme with that amount matched by their employer and the Government adding 0.5 per cent of their salary based on a €1-for-€3 contribution. Contributions will be stepped up every three years over the first decade after which they will stabilise at 6 per cent of salary from the worker, 6 per cent from the employer and 2 per cent from the State.
Auto-enrolment is somewhat different from lifetime community rating in that the onus will be on employers to enrol eligible staff into the scheme rather than on individuals to sign themselves up to the scheme. However, that is likely to prove complex where workers only hit the threshold to qualify by adding wages from more than one employment.
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