The Minister for Social Protection has presented to government the final design principles for a proposed auto-enrolment retirement savings system for Ireland. Automatic enrolment in Ireland is being mooted as a measure that could bridge the pension gap. But how will auto-enrolment pension work and how will it affect your pension plan?
The objective of the proposed auto-enrolment scheme is to ensure that every worker will have access to a workplace pension to supplement the basic state pension.
The aim is to increase active participation of the private sector workforce in supplementary pension provision from a current level of approximately 35%, as measured by the Central Statistics Office, to the long since stated government policy objective of 70% and beyond.
The proposal, which is scheduled to go live from the first quarter of 2024 will mean that all employees not already contributing to an existing employer pension scheme who are aged between 23 and 60 and earning €20,000 or more across all employments, will be required to automatically enrol in the new scheme.
The proposed design, which is still subject to specific draft legislation to be passed by the Dail, envisages matching contributions from employers and employees, with a 33% uplift of the employee contribution from the State in lieu of income tax relief. The initial contribution proposed is 1.5% by both employer and employer and a 0.5% state contribution, totalling 3.5% of an employee’s salary, in year one.
The phase-in of the scheme will mean that contribution requirements will increase every three years by 1.5% for employer and employee, reaching a total contribution of 14% in year 10, made up of 6% each for employers and employees and 2% from the state. These contributions will apply to earnings up to €80,000.
While the proposed scheme is voluntary, the approach is opt-out rather than opt-in. Employees will be able to opt out after month six following commencement and after six months of each tri-annual increase within a two-month window, with employees to receive a refund of their own contributions.
Outside these timeframes the option exists to suspend contributions without a refund. In each case the employer and state contributions also cease. Employees will automatically be enrolled again two years after cessation with the option to further suspend.
Can I rely on the State pension?
Many workers expect the State pension to be their main source of income and this reliance on the State pension will place even more pressure on already strained resources. Therefore, auto enrolment is seen as a viable solution to the pension problem and could encourage people to be more financially aware of the importance of saving for their retirement.
In order to secure a financial future, starting a pension is one of the smartest financial decisions you can make. When choosing a pension, having all the information you need is key. Sound advice is invaluable, so it's a good idea to seek advice from a financial advisor. An independent financial advisor can guide you through the process and help you select the right plan for your circumstances. You can find a local financial advisor near you with the Zurich Advisor Finder. Alternatively, our Financial Planning Team can provide you with more information about Zurich's pension plans and options.