The Government has announced details of a new auto-enrolment pension scheme for workers that will cost the State almost €3 billion in the first decade of its operation.
Contributions to the scheme from workers and their employers, with both initially contributing 1.5 per cent of an employee’s salary each, will be supplemented by a Government contribution of €1 for every €3 invested by the worker.
About 750,000 private sector workers, over the age of 23 and under the age of 60 who earn more than €20,000 per year, will be automatically enrolled in the pension scheme if they are not already signed up to an occupational pension scheme.
The money will be invested until they reach retirement age. While people will be able to opt out in a two-month window after six months, recovering only their own contributions, they will be automatically re-enrolled after two years.
Minister for Social Protection Heather Humphreys admitted the scheme was a “long time coming”. Some form of programme to supplement the State pension had been discussed for two decades.
“This represents a significant milestone in implementing one of our key Programme for Government commitments. Every worker will have access to a workplace pension,” she said, saying it would change a system whereby workers were “often left to their own devices to navigate what is a complex world of pensions, to one in which choices and options are simplified on their behalf”.
The scheme will begin auto-enrolling people in January 2024, Ms Humphreys said, with heads of bill to be drafted and approved by the Government before the end of this year and legislation to be enacted by the third quarter of 2023.
Contributions
Contributions will increase on an annual basis across the first 10 years of the scheme – climbing from matching 1.5 per cent of gross salary payments by the employer and the worker in the first three years, to 3 per cent in year four, 4.5 per cent from year seven and hitting 6 per cent in year 10.
The cost of the scheme to the State across this period will be €3 billion. The State contribution will only be paid on incomes up to €80,000 – although those earning over this amount can still participate.
There will be limited capacity for those paying into the scheme to draw down early from the scheme, a briefing was told on Tuesday – with only illness being considered as grounds to do so.
The State will set up a central processing authority which will administer the scheme. The pensions themselves will be invested by four registered providers in four different investment portfolios, depending on savers’ risk appetite. An online portal will allow auto-enrolled people review the size of their pension pot.
Management fees will be capped at a “maximum envisaged” level of 0.5 per cent of assets under management.
Eligibility
Those outside the eligibility criteria – for example, because they earn under €20,000 a year, are not old enough or are too old for auto-enrolment – will be able to opt in to the scheme.
The pension savings will transfer with a worker if they switch jobs, so employees will not have to move their pension across to a new scheme.
Ms Humphreys indicated that the state retirement age – which the Government had previously indicated would be decided on by the end of this month – will now be confirmed in April.
