Loophole in new pension scheme could see thousands of workers losing out

A loophole in the legislation underpinning the planned auto-enrolment pension scheme could see large numbers of workers losing out, the Irish Congress of Trade Unions said.

The union body has welcomed the beginning of the Dáil debate on the Automatic Enrolment Retirement Savings System Bill, due to begin today, and is calling on politicians to “get the bill done”.

But it said that the bill needs to be amended to avoid employers escaping having to make contributions to the pension funds of some workers for a number of years.

At the moment, employers are legally required to provide their employees with access to a personal retirement savings account (PRSA) if they do not provide an occupational pension scheme.

But the employer does not have to make a contribution on behalf of the staff member to a PRSA.

Around one in 20 employees with a pension has a PRSA only.

Irish Congress of Trades Union (Ictu) general secretary Owen Reidy said that the provisions of the auto-enrolment bill will mean these workers with a PRSA will not be automatically enrolled or guaranteed a minimum employer contribution to their retirement savings for at least seven years after auto-enrolment comes into operation.

This is because the bill sets out a seven-year period before minimum employer contribution rates will be applied to all personal pensions and occupational pensions.

The way the bill is framed will mean people with a PRSA will have no employer contributions for seven years, while those enrolled into the auto-enrolment scheme will benefit from seven years of employer contributions.

Mr Reidy said: “We strongly call for the seven-year deadline provided for in the bill for setting minimum contribution rates into existing pension schemes to be shortened.

“It will be a bitter pill to swallow for workers who find themselves with a lower or, in cases of personal pensions, no employer contribution because they had proactively taken steps to save for their retirement prior to auto-enrolment.”

He said an amendment to this part of the bill is needed.

Plans to introduce auto-enrolment have been discussed for more than a decade and a half. The deadline for its introduction has been constantly moved, with the start of next year the latest date.

However, there are doubts that it will begin then as it will be near a general election. Businesses have been complaining about a raft of recent changes that have meant it is more costly to employ people.

Last month Social Protection Minister

Heather Humphreys got cabinet approval for draft legislation on the Automatic Enrolment Retirement Savings System Bill.

It will apply to almost 800,000 workers between the age of 23 and 60 who are employed but not enrolled in an occupational pension scheme, and drawdown will be aligned with the state pension.

The scheme is being targeted to allow those with no work pension to begin saving for their pension earlier and to ensure that people are not left on just the state pension when they retire.

The scheme will see employees contribute into the pension pot, with their contributions matched by their employer, as well as a top-up from the State.