Business costs could hit pension scheme set to benefit women

The private pension auto-enrolment is a new retirement savings system for employees that is set to be introduced in the second half of 2024, but some wait with bated breath

Minister for Social Protection Heather Humphreys has insisted the plan will launch by the end of the year. Picture: Sam Boal/Collins

A long-awaited government scheme is anticipated to support wealth equality for female workers — but a lack of detail and the rising cost of doing business could crush the plan before it is even implemented.

Employment solicitor Barry Crushell said private pension auto-enrolment could be largely beneficial for women as he is aware of many who enter into “much more precarious part-time and flexible working arrangements than men” and “are likely to be paid less than men in general”.

“Auto-enrolment in a pension scheme in the very early stages of their career is not something that is very high on their agenda,” he said, adding that people in general enter into pension agreements too late.

In addition, Mairead O’Mahony, the head of wealth at professional services firm Aon Ireland, suggested auto-enrolment will provide more protection and awareness for women workers who often need to take time out of work for maternity leave and other family duties which lead to declines or pauses on pension contributions.

Private pension auto-enrolment is a new retirement savings system as many employees do not have a pension scheme, which means they will be relying on the State pension when they retire.

The State pension can make sure that retired people stay above the poverty line, but most people are used to having more money to live on.

People who do not have a pension scheme, earn more than €20,000 per year, and are aged between 23 and 60 will be automatically enrolled into the new system at the end of the year.

Pre-pandemic figures from the Economic and Social Research Institute (ESRI), showed that the pension gender gap in Ireland stands at 35%.

While more than half of men receive a private pension, less than one in three women receive the same benefit.

The ESRI also showed 33% of retired women have worked more than 30 years, compared with 93% of retired men.

The main obstacle for pension auto-enrolment will be the cost factor though, according to both Mr Crushell and Ms O’Mahony.

Mr Crushell said the various government measures — including a minimum wage increase and the return of the higher rate of Vat — have hit businesses, and that auto-enrolment is being viewed as “wage inflation brought about by another government initiative”.

“While the amounts may seem quite minuscule at the outset, for a small or medium sized business, the cumulative effect could be quite substantial,” said Mr Crushell.

Provest Investment Consultancy financial advisor Olive Walsh said the current private pension system hopes that the scheme will go even further in terms of boosting long-term finances of women.

“Their unpaid role as a carer in the home is not taken into account for private pension provision,” said Ms Walsh.

The State pension model has become more inclusive. However, the taxation structure of private pensions only offers tax relief for pension contributions made from paid employment.

The private pension auto-enrolment is set to be introduced in the second half of 2024, but some wait with bated breath.

Ms O’Mahony said auto-enrolment has been talked about since she joined the wealth management industry 20 years ago, “and others tell me it’s been talked about since before then too”.

However, Social Protection Minister Heather Humphreys has insisted the plan will launch by the end of the year.

Ms O’Mahony said that there is still a huge amount of uncertainty around how the scheme will be implemented which could lead to pushback and further implementation delays.

Large firms often have their own private pension scheme for employees which may be at odds with the auto-enrolment initiative.

This could lead to firms dragging their heels with auto-enrolment and subsequently the entire plan could crumble from lack of adoption.

“There is so much complexity with how these two systems interact and we are lacking in clarity about what that will look like,” Ms O’Mahony said. “In practice. I want the level of flexibility employers have to look after their people.”

Ms O’Mahony added that this uncertainty is likely to cloud the scheme until legislation is unveiled.

Aon Ireland is one of the largest players in the workplace pensions market, with over 39,000 members. Total assets under management in The Aon Ireland Master Trust surpassed €2.5bn at the end of 2023.