Many people, including many politicians, are calling the pension situation in Ireland a “time bomb”. That is somewhat emotive language, but it does highlight a real problem that most economists predict. The problem is there will soon not be enough money available to maintain a decent standard of living for people in retirement. One of the solutions to this is private pension reforms, but what will that mean for your business?
Firstly, it is important to note that nothing is in place at the moment. There appears to be a general consensus that nothing can be done with this issue until the wider economic position of the country improves. However, there is legislation in place that will allow a government at some time in the future to enact some sort of reform.
Admittedly, there are a lot of unanswered questions in that last paragraph. Most notably: when is private pension reform going to be introduced, and what will it look like? We simply don’t know the answers to that yet. We might not even see the proposals until early 2016. But most experts believe change is inevitable which means it is prudent for small and medium sized businesses to think ahead.
What Could It Mean For You?
Even though we don’t know what the reforms will look like, it is likely that there will be an impact on businesses in two ways – through added administration and added cost.
To get an idea we can look at what is happening in other parts of the world. For example, in the United Kingdom, reforms to UK private pensions are already underway. They are still in the rollout phase, but they are having an impact on UK businesses. Under the reforms all employers must offer a pension scheme to their employees.
The impact of this on UK businesses is in terms of cost, time and administration. They have to setup and administer the scheme, while also deducting the contributions from the salary of their employees. They also have to make a contribution to the pension – equivalent to one percent of the employee’s earnings in the initial phases of the reform, but rising to three percent by 2018.
So for UK businesses, that is a significant cost. In other countries it is even more, though – in Australia it is 12 percent.
What Should You Do?
There is no way of knowing at the moment if Irish employers will have to make any contribution to the pensions of their workers, or if they will get the responsibility of administering the schemes. But there are some things you can do to prepare your business for possible changes.
The first is to look at what the impact of any changes might be. For example, if something similar to the UK model was introduced here, what would that mean on the workload of your accounts team and the cash flow of your business over the next five years?
The second thing you can consider is offering a voluntary pension scheme to your employees now. Private pension reforms are going to be introduced when the economy is stronger, which also often means when the employment market is more competitive. Offering a pension scheme now will help you attract and retain the best people.
Finally you should check if you have adequate systems in place to handle any extra administration that may come with the reforms. Taking these steps today will mean your business will be much better prepared for the changes.