Auto Enrolment shines spotlight on pension coverage and adequacy

The advent of the Auto Enrolment (AE) Retirement Savings System is one of the most significant and welcome developments in the pensions landscape for very many years, writes Niall Hall, Senior Employee Benefits Manager, Zurich Life.

Regardless of what else Auto Enrolment (AE) achieves when it eventually becomes a reality, it has already succeeded in shining a spotlight on the pensions issue and has generated unseen levels of interest in the topic.

We have seen evidence of that in the increased number of enquiries being received from employers wishing to set up a pension arrangement for their employees, or to make improvements to their existing arrangements. It is also evident in the recruitment market where employers are reporting a heightened focus on retirement benefits on the part of candidates of all ages. Employers are also noting an impressive level of technical knowledge in relation to pensions on the part of candidates.

Auto Enrolment is aimed at addressing the needs of the vast swathe of the Irish workforce which currently has no occupational pension provision. According to government figures, there are approximately 750,000 workers over the age of 23 and earning at least €20,000 per annum* currently in that position.

At present, they face the prospect of their sole income in retirement being the
State Pension (Contributory) of €13,795 per annum at the current maximum rate**.

Auto enrolment will therefore represent a major step forward. But it must be borne in mind that it will not necessarily provide a solution for everyone and in many cases will offer benefits that are actually very different and may not suit those already enjoyed by members of workplace pension schemes.

Contribution levels to the Auto Enrolment System will start at an extremely low level and won’t reach the same levels as those of many workplace schemes for several years.

Why Master Trust makes sense

A Master Trust is simply a defined contribution company pension scheme set up under trust. It differs from traditional Defined Contribution pension schemes in that multiple employers all coexist under the one trust deed, hence the term ‘master trust’. Employers struggling with onerous new responsibilities in relation to their pension schemes brought about by the IORP II directive have the option of moving their scheme into a structure like the Zurich Master Trust where all those obligations are looked after in a professional and cost-effective manner.

Companies can outsource all the governance and administrative obligations to the Zurich Master Trust. The Zurich Master Trust is designed to comply with the enhanced member communication requirements contained in IORP II (Institutions for Occupational Retirement Provision) as well as with the new obligations in relation to investment strategies.

The Master Trust option is clearly very attractive for the many hundreds of mid and large sized employers where the additional costs and governance requirements associated with IORP II compliance could detract from enhancing member benefits in the long run.

Employers need to pre-empt the arrival of auto-enrolment in 2024. Unless they establish some sort of Pension Arrangement which provides contributions and benefits at least equal to those required under AE, then the Employers will have no option but to ensure that their Employees are Auto enrolled in the government proposed AE system.

Of course, there is also a large cohort of smaller firms operating in some sectors which do not currently have a pension scheme in place and probably have no intention of establishing one. The auto enrolment system will certainly play an important role in boosting the retirement incomes of workers in those firms.

AE uncertainties

There are many unknowns and uncertainties swirling around the auto enrolment proposal at present. Chief among them is the start date. AE is due to launch in Q1 2024, but no exact date has been confirmed yet.

There is also a very clear difference when it comes to tax relief. An employee paying income tax at the 40% rate effectively receives tax relief at the marginal (highest) tax rate. However, if they become a member of the Auto Enrolment system the State will provide a top-up equivalent to 33% of the employee contribution*.

That equation changes in favour of the employee if they are paying tax at the standard rate of 20%, of course. Again, this highlights the potential utility of the new AE system for employees in lower paid areas of the economy.

Attracting and retaining employees

Employers need to consider their options carefully at this point. Employees and job candidates have become a lot more sophisticated in terms of their pensions knowledge and this is having an increasing influence on their choice of employer.

Companies which offer a defined contribution pension scheme with contribution levels designed to deliver an adequate pension in retirement will enjoy a distinct advantage in the talent market while also enjoying an enhanced employer brand. And they can achieve that with the Zurich Master Trust which offers market leading active investment performance, governance expertise and streamlined administration, all in a highly cost-effective package.

Source: *The Design Principles for Ireland’s Automatic Enrolment Retirement Savings System, Department of Social Protection, March 2022

Source: **State Pension (Contributory) (

The information contained herein is based on Zurich Life’s understanding of current Revenue practice as at April 2023 and may change in the future.

Please contact us to learn more about Corporate Pensions from Zurich.

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About: The Zurich Master Trust

For over 40 years, Zurich has been providing retirement solutions and today, we are one of the largest pension companies in Ireland. The Zurich Master Trust leverages our experience, expertise, innovation, and dedication to scheme governance to provide you with a pension scheme that is streamlined, providing peace of mind for you and your employees.

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