Almost all workers will be enrolled in a pension scheme from 2022 under a series of pension reforms the Government promises will be the most fundamental in several generations.
Unveiling a five-year road map for pension reform, Taoiseach Leo Varadkar said it was one of the most important things his Government would initiate in its term of office.
“Pensions can be very complex but they are also very simple,” the Taoiseach said. “The more you pay in and the sooner you start, the more you get when you retire.
“We have time to defuse the pension timebomb but only if we start now,” he added.
The Minister for Social Protection Regina Doherty said it was "increasingly clear that people in the private sector are not saving enough, or at all" for their retirement.
Contribution
She confirmed the Government’s intention to introduce auto-enrolment from 2022. This will see all private sector workers over a certain age and income level automatically signed up for a pension into which the employee, the employer and the State will contribute.
An illustration in the report outlines an eventual position where workers and their employers could each put 6 per cent of their pay into a pension scheme under auto-enrolment, with the Government contributing a further 2 per cent of pay into the plan. However, the Minister stressed that the final design of the scheme has yet to be determined and people will be permitted to opt out of the arrangement.
Patricia King, general secretary of the Irish Congress of Trades Unions, welcomed the introduction of auto-enrolment, a measure she said Ictu had lobbied for over many years.
"It is critical that we move to address this major deficit in our pensions system, with some 60 per cent of private sector workers currently without workplace pension coverage and forced to rely solely on the state pension in retirement," she said.
Ms Doherty also confirmed that, from 2020, the Government will reform the State contributory pension so that entitlement is based on the total number of PRSI contributions made over a person’s working life.
The Minister introduced such an approach on an interim basis last month for people who have retired since September 2012.
Increases
The Government also proposes to link future increases in the State pension to inflation to ensure it continues to be paid at a rate of 34 per cent of average earnings as well as allowing people to work longer – deferring their State pension in return for a larger payment later in life.
The five-year plan also includes measures to reassure members of defined-benefit of final salary pension schemes in the private sector as well as further reform of public services pensions.
And it proposes to address the proliferation of small occupational pension schemes that result in higher costs for scheme members.
A potential review of mandatory retirement ages, especially in private sector companies may also take place.
The Government will put the measures on auto-enrolment and the State pension out to public consultation in the second quarter of this year. It is also promising a public consultation on the future funding of the Social Insurance Fund, into which PRSI payments are made and from which State pensions and other welfare payments are paid.
