Published 30 Sept 2020
6 in 10 Defined Contribution pension schemes are unprepared for auto-enrolment
1 in 4 employees have not signed up to their employer’s Defined Contribution scheme
30th September 2020 – A new survey from the professional services firm Aon has revealed that many pension schemes are struggling to keep pace with the significant changes facing Ireland’s pensions landscape.
The survey of employers and trustees from 120 Defined Contribution schemes in Ireland, representing over 117,000 employees and AUM in excess of €4.75 billion of assets, has also found that employers in Ireland appear to be taking a “wait and see” approach to pending legislative changes.
6 in 10 Defined Contribution pension schemes are currently not prepared for the planned introduction of auto-enrolment which will see all private sector workers being automatically included in a pension scheme.
The research finds that more than 1 in 4 employees are currently not yet members of their company scheme.
Commenting on the findings, Rachael Ingle, CEO, Aon Solutions Ireland said: “The survey findings give real cause for concern. There are a number of issues emerging which, if not addressed, could become very problematic in the years ahead. To counteract the evolving challenges developing, amongst other things we are calling on employers and trustees to work together to plan for auto-enrolment prior to the regulatory deadline.
“It is worrying to find that 25% of people who are eligible for membership of their company's pension scheme have not joined. This can only mean that they do not understand the potential consequences of failing to plan for their longer-term future financial wellbeing. Ireland is fortunate in that we have a young but aging population which means there is still time to address the accelerating pension timebomb, but only if we act quickly.”
The survey also identifies a trend towards matching contributions with almost 50% of all Defined Contribution pension schemes applying a contribution structure which provides for a higher employer contribution if the employee also agrees to pay more. However, in addition to the 1 in 4 who are not yet members of their company pension scheme, many members are not paying the maximum employee contribution and as a result, both groups are leaving free money from their employer on the table.
Governance and compliance issues remain a challenge for the sector in Ireland with ever increasing regulatory costs associated with for instance, the General Data Protection Regulation (GDPR) and the upcoming IORP II Pensions Directive. With a greater focus on governance and monitoring, it is heartening to see that there has been a significant increase in the number of trustee boards measuring their performance – currently 73%, up from 53% in 2016.
Aon’s survey points towards significant structural changes to Ireland’s pension landscape with 44% of all Defined Contribution pension schemes trustees concentrating on investment strategy and delegating operational investment decisions. Additionally, following a global trend, employers are increasingly considering delegating complete responsibility for the management of their Defined Contribution pension schemes to “master trusts”.
The survey found that 88% of schemes surveyed still have a normal retirement age of 65. This is despite the state pension age being 66 and current Government plans to increase it to 68 by 2028.
Rachael Ingle, CEO, Aon Solutions Ireland added: “As the COVID-19 pandemic evolves and its implications on savings and investments becomes clear, it will become increasingly important for pension schemes to find ways to provide robust governance structures that deliver results while connecting more effectively with employees to ensure financial wellbeing in older age is achieved. From encouraging members to maximise both their own and their employer’s contributions, to educating them about investment and retirement considerations, it is critical for employers, trustees and employees to take action now in order to plan for the future."
“Aon is committed to working closely with employers and trustees to identify and implement pension solutions that ultimately aim to deliver better outcomes for members in a volatile and rapidly changing environment.”
For more information on the Aon 2020 Defined Contribution Survey visit: https://www.aon.com/ireland/retirement-investment/dc-survey.jsp.
Media Contacts:
Paul Nallon, Q4PR – Tel: 086-8694041 / Email: [email protected]
Suzanne Sullivan, Q4PR – Tel: 086-3797291 / Email: [email protected]
About Aon
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
About the COVID-19 Pulse Survey
The COVID-19 Pulse Survey of 274 Irish business leaders from a range of sectors within the economy was undertaken between June 9 and June 15.