Employers have vital role in giving staff real insights on pensions AE

With so many entering pensions auto-enrolment (AE) in January, employers can help raise awareness, says CIPD expert

Alison Hodgson, market director for Ireland with CIPD.

Detailed employer communications around pensions auto-enrolment (AE) will be critical to ensuring that employees are fully aware of the controls they retain over their pensions going forward.

Alison Hodgson, the CIPD’s market director for Ireland, said that employers need to be aware of the societal impacts of workers withdrawing from the My Future Fund at the first window of opportunity if they don’t see value in the new pension scheme.

The CIPD, the professional body for HR and people development in Ireland, issued its words of caution following a Department of Social Protection (DSP) warning that some employers are trying to avoid the new pension auto-enrolment system by forcing employees to join less favourable pension schemes.

The My Future Fund pension scheme starts in January and will see employees aged 23 to 60, who are earning over €20,000 per year, automatically enrolled if they’re not already in a qualifying pension scheme.

However, the DSP wrote a letter to the Irish Congress of Trade Unions (ICTU), warning that some employers have been seeking to reduce their own pension admin costs by encouraging their staff to sign up for lower-value pension schemes involving an employer contribution of about 1% of salary.

By contrast, the My Future Fund is to be gradually phased in over a decade, with both employer and employee contributions starting at 1.5% and increasing every three years by 1.5% until they eventually reach 6% by year 10. The employee’s eventual retirement pot will be far stronger, but, of course, so too would be the costs to the employer.

The Government is seeking to bring in emergency regulations to stop companies attempting to force their employees to join inferior in-house pension schemes with ‘token’ employer contributions.

“We are strongly advising employers to talk to their employees and ensure that they are enrolled in a pension that works best for them. Employers who don’t meet their obligations will be subject to penalties and possibly to prosecution,” said Ms Hodgson.

“For many lower-paid workers, the decision to remain in a pension scheme is not just about understanding the system, it’s about affordability. For someone juggling bills, rent, and groceries, even a modest pension deduction can make the difference between getting by and going without.

“While the long-term benefits are clear, the short-term reality can be harsh. We’re encouraging everyone to keep talking and to take control of their retirement savings plan today.” 

 The CIPD says that Ireland’s ageing population is underlining the need for younger people to buy into the new pension scheme. Ireland’s ratio of workers versus those of pensionable age is predicted to fall from its current 4.5:1 ratio down to 2.3:1 by 2065.

“There simply won’t be enough people working and contributing to allow Ireland to sustain the already very tight pensions system,” she said. “The relationship between the employer and the employee is shifting on this issue.

“Communication and engagement are everything in the workplace. Employers have a vital role to play in ensuring that employees are informed, and realise that they are being given the opportunity to take control of their retirement income.

“You get to decide what is better for you personally over the long term and the short term. Come next July or August, some people may decide to opt out of the new scheme, and then stay out for two years. The My Future Fund will disrupt the inertia among the many people who are simply not talking about pensions. That has to be welcomed.” 

 Ms Hodgson highlighted the need for strong communications in the SME sector, which employs around two-thirds of the Irish workforce. Much of the heavy lifting around communications on pensions will fall on this sector, where most employers are already dealing with very pressing business concerns.

Most immediately, employees need to know how much of their take-home pay will be down due to their new pension contribution. Employees on a €25,000 salary will be down around €365 per year, around €30 per month.

Those on €44,000 will be down €663 a year, or around €60 a month. Those on €80,000 will be down €1,200 a year, or €110 per month in their take-home pay.

“It is important for people to know as much as they can up front. They may need to pare back on groceries, put off changing the car. People need to plan to be sure they still have adequate money to live on,” said Ms Hodgson.

“For many lower-paid workers, the decision to remain in a pension scheme is not just about understanding the system, it’s about affordability. For someone juggling bills, rent, and groceries, even a modest pension deduction can make the difference between getting by and going without.

“Employers need to talk to their employees about engaging with their own pensions. People need to be aware of their admin costs with pensions, and to understand the return on their investment.

“Employers are not allowed to advise people on their investment, but they can signpost people towards where they can look to find information to inform themselves. And employers can certainly help make this issue real for people by helping them access information and figures that they can understand.”

Meanwhile, the CIPD has also welcomed the opening of consultations up until December 9th on the right to request remote and flexible working.

“We welcome the opportunity to contribute to the consultation on the right to request remote and flexible working and we strongly encourage individuals and organisations to have their say,” said Ms Hodgson.

“Current legislation focuses mainly on the mechanics of submitting and responding to requests without a robust mechanism to challenge the fairness or consistency of decisions. We believe that introducing clearer criteria for refusal, including a definition of what constitutes a ‘substantial adverse effect’, alongside an independent appeal or review process would help deliver more transparent, equitable and consistent decision-making.

“It is essential that the legislation remains clear, workable and supports constructive dialogue between employer and employee while also reflecting the diverse realities across sectors, roles and business models.”