…for workers over age 22 in a new supplementary State retirement plan, if they aren’t participating in a better plan at their work. We’ll come back to what’s “better” in a minute. The choice architecture of the Irish plan is stronger than the plans used here in the U.S. and therefore bound to be more controversial. People who sign up get bonus payments from the government if they stay in for five years, and if someone opts-out, they are automatically re-enrolled again every two years. In other words, you have to keep opting out of the plan.
Over at the Geary Behavioural Economics Blog, Liam Delaney offers some excellent observations about the whole reform plan, which goes beyond automatic enrollment. Compared to the U.S., the plan is a generous one. One of its features is a 4 percent matching contribution that is split between an employer and the government. If a worker is in a plan that matches at higher levels–and therefore is “better”–that worker is not placed automatically in the State plan. But what if an employer’s “worse” plan currently matches at lower levels? asks Delaney.
The employer contributions aspects create strange incentives for employers. For example, a company with 100 workers earning 20-40k per year that currently has a pension scheme with 30 per cent take-up, could find themselves with an extra fifty thousand or so per year to pay in terms of staff costs. While the employer would be obliged under the current scheme to enroll people onto the pension plan, they would not be obliged to enthusiastically endorse this to their workers. The social interactions that take place in this regard are interesting to think about. In general, the employer response to a national automatic enrollment scheme where the employers are bearing a good chunk of the costs is an element not usually present in the US literature.
Addendum: Conversation about the new pension system here.
Addendum Too: 12 skeptical questions about the plan from Constantin Gurdgiev.