Why don't they just auto-enrol everyone into a PRSA?

[C_Pike]

I can't get over why they don't just auto enroll everyone into a PRSA, with a mandate for the employer to contribute a small amount to encourage it. I was chatting to some of our staff about auto enrollment (I can now win the bet that it would be further delayed) and showed them the math on just making contributions via their PRSA (most would be on higher rate tax, to be fair) vs this new system. As an employer, if we're going to be forced to do matching contributions fine, but I'd much rather help the employee in the way that carries the most bang for the buck.

 

[LDFerguson]

A good idea. Given the potential numbers involved, I'd be inclined to force the PRSA providers to offer a special AE variant of their PRSA with 100% allocation as standard and perhaps less than 1% AMC for a basic menu of funds and/or a default strategy.

Seems a lot more sensible than reinventing the wheel.

 

[C_Pike]

A good idea. Given the potential numbers involved, I'd be inclined to force the PRSA providers to offer a special AE variant of their PRSA with 100% allocation as standard and perhaps less than 1% AMC for a basic menu of funds and/or a default strategy.

Yes a "default state PRSA" scheme with low fees, put out to tender every few years to attract lower bids for new entrants perhaps. If SL and Royal London can be doing <1%...

Seems a lot more sensible than reinventing the wheel.

This entire project feels like officials sitting around trying to find a bespoke way to address a problem. I get that they really want to incentivise lower paid workers into the pension net, and the incentives might look a little different if you're paying little to no income tax at the lower rate; but fundamentally if you can say "We're forcing you in for x% and your employer for x% match, and you get this tax relief too" it's the employer match that catches the attention at lower pay.

Anyway, as and when they introduce the mandated match it's our intention to just strongly advise people to go into the PRSA system and we'll contribute it there. So, job done... after a lot of faffing around.

 

[GSheehy]

as and when they introduce the mandated match it's our intention to just strongly advise people to go into the PRSA system and we'll contribute it there

Why are you waiting for the mandated match?

I presume the proposed PRSA Scheme you're talking about will have zero advice attaching to it too.

 

[Dr Strangelove]

The old argument is that the low paid pay very little tax therefore don’t get the benefits of tax relief on pension contributions.

One solution is to ensure that everyone with income pays income tax like in most countries, but that could never be countenanced in Ireland. Hence auto enrolment is very contrived and built around this fact.

 

[C_Pike]

Why are you waiting for the mandated match?

To advise people to contribute to a pension? We advise it regularly. To match contributions? We do so, to a limit. Some people still don't avail. I'm hoping that by having to opt out of this new system, we can get them in. I tell people they're leaving money on the table, they tell me about how they might never live to retire. I thank them for their additional voluntary contribution to the company's profits.

I presume the proposed PRSA Scheme you're talking about will have zero advice attaching to it too.

If it gets people from no pension to a pension with no advice, I think it will be an improvement for the long term. Government could do with working hard to better educate people on their retirement finances, planning and options in general IMO. Far too many people 30+ years from retirement sitting in default low risk investment strategies (who are still doing better than people with no pension at all.)

The old argument is that the low paid pay very little tax therefore don’t get the benefits of tax relief on pension contributions.

I can see that, but forcing employers to contribute on a matched basis creates an incentive for people to jump in (even if, as I say above, people with the match on the table turn it down... But I imagine matches are less common for low paid workers in a variety of industries.)

 

[Dr Strangelove]

forcing employers to contribute on a matched basis creates an incentive for people to jump in

One issue is that employment of low paid workers tends to be pretty come and go. Also employers come and go much more frequently.

I think there will be compliance issues with places like your local coffee shop or newsagent ducking out of their obligations. From a regulatory respective it will be very difficult to bring this to the attention of firms never mind enforcement.

The decision not to use Revenue for collection - which interacts already with every employer in the country - was incredibly bad.

 

[Towger]

The decision not to use Revenue for collection - which interacts already with every employer in the country - was incredibly bad.

DSP believe they will do a better job at collecting pension contributions from employers than Revenue do collecting tax.

There is another difference between a PRSA and AE. A pension is (normally) based on basic pay, while AE is based on all gross pay. In some employments with a lot of commission and overtime AE maybe a better option.

 

[conor_mc]

There is another difference between a PRSA and AE. A pension is (normally) based on basic pay, while AE is based on all gross pay. In some employments with a lot of commission and overtime AE maybe a better option.

Interesting observation, hadn’t realised that.