0:00

The Last Word with Matt Cooper, weekdays

0:02

from 4.30. Charlie

0:05

Weston, personal finance editor of the

0:07

Irish Independent. Something else the cabinet

0:09

did today was introduce the pension

0:11

auto-enrollment scheme. What does that mean?

0:14

Yeah, they've signed off Matt on

0:16

draft legislation to bring in a

0:18

new pension scheme, which people

0:20

who don't have a company pension are

0:22

going to be automatically enrolled into. It's

0:25

in addition to the state pension, in addition to,

0:27

you know, your peer-assigned state pension, auto-enrollment.

0:30

This kind of model is not a

0:32

new one. It's worked really well in

0:34

other countries. It's called Super in

0:36

Australia. They love it. It's a huge scheme,

0:39

and the money in it is invested all around

0:41

the economy. Kiwi Save

0:43

in New Zealand is very popular, and Nest

0:45

in England has worked really well. It's brought

0:47

up pension coverage from something like 45% to

0:50

near 80% in Britain. So,

0:53

look, it's for the 800,000 people

0:55

who are in a job who don't have

0:57

a pension. They're

1:00

earning maybe 20,000 euros or

1:02

more up to about 80,000, but they're just going

1:04

to have to rely on the state pension, which

1:06

14,000 a year.

1:08

It's not pittance, but it's just not going to keep

1:11

you going, probably. If you're on the average industrial

1:13

wage, your 47 grand is a hell of a drop

1:15

down to 14 grand a year. And it depends

1:17

on whether you've got your mortgage paid off and all

1:19

the rest of it and stuff. I suspect though

1:21

some people will see this as an extra

1:23

form of tax, but I

1:26

suppose tax is something that you contribute to

1:28

the state coffers and you hope to get

1:30

something back out of it or you get

1:32

services. Whereas this is money effectively that you're

1:35

saving for yourself. Would that be

1:37

the difference in why we need to tax? Look

1:39

at it, Matt. And businesses are making legitimate arguments

1:41

as well that they've loads of extra costs imposed

1:43

on them in the last year, particularly. But

1:46

look at it. It's been talked about for

1:48

nearly 16 years. It's finally time to do

1:50

it. It's never a good time to do

1:52

it. But is this essentially forcing an employer

1:54

who does not offer a pension to pitch

1:56

into the person's own pension that they will

1:59

have to make? contribution. You're right, Matt,

2:01

it is forcing me at the moment all

2:03

the employer has to do is offer you

2:05

somebody who will advise you about a PRSA,

2:07

a personal retirement savings plan, they

2:09

can just put you in front of somebody but they

2:12

don't have to contribute. In this case, you'll

2:15

put in about, for every three euros

2:17

you put in, the state will put

2:19

in another euro and your employer will

2:21

put in three euros. So for

2:24

every three euros you put in, seven euros

2:26

will be in your pension pot. It's a

2:28

bit like the old SSIA's, maybe the listeners

2:30

won't remember those but that was a kind

2:32

of a saving scheme where you

2:34

put in... For the charity we're previewing. For the

2:36

charity we're previewing way back then and the government

2:38

topped it up. It was massively popular, people did

2:41

very well out of it. But

2:43

you see, Charlie, I wonder if the people who

2:45

actually can't afford a pension at the moment are

2:48

being encouraged now to actually pay this money

2:50

in and there might be good reason but if

2:52

they couldn't afford already to have a pension because

2:55

they've got so many other bills or if they're

2:57

paying expensive rent or if they're saving for outside,

2:59

they have a big mortgage, you know, they may

3:01

be offered this auto-enrolment option but I wonder how

3:03

many would say, I just can't afford it even

3:06

if my employer is matching it and even if

3:08

the state is pitching in one euro and seven.

3:11

Definitely affordability is a big issue but

3:13

the single biggest issue when the central statistics

3:15

office do surveys on this and it isn't regularly

3:17

is, why did you not start a

3:19

pension if you don't have one in work? I

3:22

never got round to it, tends to be the

3:24

big answer. Yeah. So, you know, this is the

3:26

kind of ease you in. There's only going to

3:28

be a small contribution initially, one and a half

3:30

percent of your gross salary from for the first

3:32

couple of years. It goes up gradually, it'll be

3:35

10 years before you hit six

3:37

percent and that's the max it's going to

3:39

be. So, you know, the experience in other

3:41

countries is if you automatically enroll

3:43

people into these things, they have to make an effort

3:45

to get out of it. You can get out of

3:47

it but they tend not to. Question from a listener,

3:49

can somebody already in a pension scheme switch to this

3:52

pension? I think there will be an option to do

3:54

that. Look, we have a... But would it be worth

3:56

it to them? They're probably better off in their existence.

3:58

It really depends on how much you're earning. If you're

4:00

a higher earner paying the 40% tax

4:02

at 40%, you're better off staying in

4:04

the scheme that you're in. It's

4:07

essentially for those people who don't have a scheme, but you may

4:09

be able to roll other schemes into it, and you'll be able

4:11

to move around with this as well. It's portable. The

4:13

pension pot moves, which if you move

4:16

jobs. Okay, tell me about variable electricity

4:18

rates, so-called dynamic tariff model. Yeah, this

4:20

is kind of complicated, and it's something

4:22

that's just proposed by the regulator, the

4:25

energy regulator. It's essentially where

4:27

it's called dynamic tariff pricing. The

4:30

amount you pay varies by the hour,

4:32

depending on the wholesale price of electricity.

4:34

Now, this is a bit complicated. So

4:37

basically, you pay your standing charge, you

4:39

pay a base unit rate for your electricity, and

4:42

then you pay this dynamic unit charge on

4:44

top of that. So based

4:46

on hour-by-hour wholesale prices, you pay according to

4:49

that. So if there's a lot of wind

4:51

on the system, and it's relatively cheap for

4:53

the system to generate that, you'll

4:55

do okay. And it's kind of the next day

4:57

you look at, you don't have to do

4:59

it by the hour, but you choose from what was

5:02

yesterday's wholesale prices. It's called the day

5:04

ahead market. It's very technical, and the

5:07

regulator is only proposing this. It will

5:09

suit some people, a lot of people.

5:11

But surely that's needed to reward people

5:14

who do things like only putting their

5:16

washing machine on in the evening time

5:18

after peak hours. People who

5:21

charge their electric car, their hybrid overnight.

5:24

Maybe they should be getting cheaper rates

5:26

for actually facilitating, helping the providers

5:28

by not using at a time

5:30

when the demand is higher. Well,

5:32

they do. And there are

5:34

schemes like that time of use scheme where you

5:36

can day night rate, where if you have a

5:38

smart meter, you can sign up for cheaper electricity

5:40

at night. You can charge the car at night.

5:42

You can put on the tumble dryer at night

5:44

or whatever. It doesn't always

5:47

suit families. Some families, the dynamic, if you're

5:49

young kids, you just need to put on the washing machine when

5:51

you need to put it on. If you're going out in the

5:53

morning, you probably don't have an option in leaving the house for

5:56

choosing when the sun is shining to use your solar

5:58

panels or whatever. another

6:00

option where you could maybe benefit

6:03

from, you know, if the

6:05

wholesale market is particularly cheap for

6:07

a week or two and we really don't know

6:09

until we see the thing being put together and

6:11

it hasn't been put together, it's only a consultation

6:13

by the energy regulator. We need to see the

6:15

pricing of it to see if it works. It

6:18

will not suit everybody but it is another option

6:20

Matt. Thank you very much, Charlie West and personal

6:22

finance editor of the Irish Independent. The last word

6:24

with Matt Cooper. Weekdays from 4.30.