Introducing pension auto-enrolment is a lengthy process, but learnings from abroad and new technologies should quicken the pace says Stuart Murphy of Legal & General Investment Management

The auto-enrolment pension scheme for Ireland has been in the pipeline for a quite a while and much thought has naturally been given to how over 750,000 Irish workers might be seamlessly enrolled in the scheme in little under 12 months.

Businesses and their payroll function are acutely aware of the incoming legislation that aims to establish a centralised system through which eligible employees will be opted into the scheme from January 2024.

Reports suggesting that this deadline could be overly ambitious and delays in auto-enrolment introduction are inevitable may not be wrong.

However, if the chosen platform provider and investment managers are given enough lead-in time to align with this centralised system, auto-enrolment could be up and running quicker than many expect.

In the UK, auto-enrolment through a workplace pension scheme has been embedded into the state’s retirement planning for more than decade, and since its introduction c.40% more people are saving into such a scheme.

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Across Europe, countries including Poland, Italy and Lithuania have also introduced similar schemes in recent years, all with the aim of supporting workers as they filter out of the labour force later in life.

Consideration in Ireland has undoubtedly been given to the challenges others faced in establishing auto-enrolment . These learnings, and the benefit of new and more efficient centralised technologies, present opportunities to get the cogs turning quickly once the legislative process is complete.

Centralised processing authority

Back in 2012, much time was spent on building brand new workstreams and processes in the UK, for example, identifying what responsibilities should sit with the employer, those that should sit with the platform provider, and the capacity for payroll functions to support the scheme.

With a centralised processing authority at the core of the Irish ambition for auto-enrolment, however, the same challenges that others experienced could be resolved much quicker here.

Ironing out inefficiencies early at this centralised operation will be crucial, and this is a key consideration for businesses as they make plans to implement and streamline the scheme within their own controls.

Communication between the authority and businesses will also be a central tenet in the introduction of the scheme, but equally so is the communication between businesses and their employees.

Equipping them with the right tools and information to deliver across internal channels from the outset will likely lead to greater engagement and support compliance.

Spreading the word

The capacity to reach large numbers of employers and employees through what I suspect will be a national information campaign, and through new technologies that didn’t exist in the UK a decade ago, or even four years ago when countries like Poland introduced a similar scheme, will go a long way.

Having a centralised processing authority also serves to also reduce the likelihood that unforeseen challenges might arise. Small pots – pots of less than £500 no longer receiving contributions – left behind when employees move jobs serve as one example that can be eliminated via the centralised function, helping members have one continuous pot to monitor. There are thought to be more than 11 million small pots in the UK up to the end of 2022.

Of course, the auto-enrolment scheme will come with an opt-out function for employees and if it is thought the reward of auto-enrolment may not be realised to its fullest potential, it certainly hasn’t been the case abroad.

Legal and General Investment Management’s operation in the UK has seen just 6.5% of enrolments opt-out, in spite of initial commentary that predicted this to be in the region of between 25% and 50%.

Still, it remains the case that in my view a seamless introduction of the scheme in Ireland relies heavily on bringing the platform providers and the investment managers into the frame with enough time so that the right pieces are put in place for the centralised authority to empower businesses to support the scheme in time for 2024.

Stuart Murphy (pictured) is Co-Head of Defined Contribution (DC), Legal & General Investment Management