Mandatory Employer Pension Schemes Some Way Off Yet

by Barry Walsh, Partner and Head of the Employment Team at McDowell Purcell.

The pensions’ “time bomb” is a phrase often bandied about in Ireland. It is widely acknowledged that many Irish employees are not financially prepared for retirement. However, government policy continues to grapple with how to leverage the employment relationship to help address this issue.

When it comes to mandatory obligations for employers in Ireland to establish or contribute to pension schemes, the law takes a light touch approach. The only mandatory statutory obligation on Irish employers is to provide access for employees to a PRSA (personal retirement savings account), an obligation which is not onerous in practice.

However, successive governments have noted the State’s “looming pensions’ problem” and have promised action which involves introducing extra regulation for employers, including the potential introduction of an auto-enrolment scheme. An auto-enrolment scheme is effectively a statutory obligation on employers to establish an occupational pension scheme for employees. The principle behind such a scheme involves potentially enrolling all employees, at least new employees, with the possibility of the employee opting out afterwards. However, in reality, government policy has skirted around the difficult issues thrown up by auto-enrolment including the potential cost and the regulatory and administrative burden for employers.

The current government again addressed the issue at a recent consultation forum organised by the Pensions Authority on 15 September 2016. Minister for Social Protection Leo Varadker indicated at this gathering that a universal “soft” mandatory pension scheme was “an essential policy” of the current government, but that it was a matter that would require legislation, and he hoped there would be some momentum next year. While time will tell, this does not suggest that legal changes are imminent. While such references will keep the issue alive, and while momentum may be gathering, there may be a way to go yet before it becomes a legal reality.

A recent survey conducted by State Street Global Advisors suggests support is growing for auto-enrolment in Ireland (Irish Times, 24 September 2016). 80% of employee respondents said they would favour such a scheme where they are automatically enroled in an employer pension scheme on commencement of employment. Only 10% of those surveyed were opposed to the idea in principle.

Other jurisdictions have already introduced some auto enrolment obligations, including the UK’s NEST system (which is still finding its feet somewhat) and other, somewhat different systems, in Australia and New Zealand.
There is no doubt that the idea of forcing such a system on employers and employees in Ireland is gaining more prominence, and that we will continue to hear many references to pension provision and the looming pensions time bomb. However, it may well be some time yet before employers in Ireland are legally obliged to make any provisions for employees in this regard.

About the author
Barry Walsh is Partner and Head of the Employment Team at McDowell Purcell. Barry advises a wide range of Irish and multinational corporate, public and institutional clients on all aspects of Irish employment law from recruitment to retirement including contentious, advisory and transactional work. Barry is experienced in acting for clients with respect to contractual and termination issues with senior executives. In addition to advising on employment law, he has also advises on industrial relations issues arising from mergers and acquisitions, outsourcing and redundancy situations. He has significant litigation experience and has directly represented clients before the European Court of Justice, the Irish civil courts and all specialist Irish employment tribunals.