State to top up private pensions under new auto-enrolment scheme
Retirement Social Minister Savings Protection Pensions Gareth To A Heather Unveil Humphreys Picture: Is System Supplementary Chaney/collins
A new 'SSIA-style' auto-enrolment scheme for pensions will be unveiled by the Government on Tuesday.
Under the supplementary pensions retirement savings system, to be announced by Social Protection Minister Heather Humphreys on Tuesday, some 750,000 workers aged 23 to 60 who earn over €20,000 will be automatically enrolled in a pension scheme through a new agency called the Central Processing Authority at the beginning of 2024.
The plan will see employers and employees match contributions, with the State adding a top-up of €1 for every €3 put in by workers. So, for example, a €3,000 yearly contribution by an employee would see €3,000 added by employers and €1,000 by the State.
Contributions to the pot will be made based on a percentage of gross salary and will build up over a decade.
In the first three years, this will see employees and employers put 1.5% of the worker's salary into the pot, with the State adding 0.5%. This will rise to 3%, 3%, and 1% in years four to six; 4.5%, 4.5%, and 1.5% in years seven to nine, and 6%, 6%, and 2% beyond year 10.
However, employer contributions and the State top-up will be capped at a maximum of €80,000, though employees may continue contributing on earnings greater than €80,000 if they wish.
There will be options to leave the scheme, or contributions can be paused in the event of job loss. It is understood that the fund will also offer investments at different levels of risk.
The idea of auto-enrolment has been around for some time and a plan was consulted on in 2018 by then-social protection minister Regina Doherty, though the pandemic put paid to any launch of the scheme. The current Government has committed to the plan because it is felt that not enough people have occupational or supplementary pension coverage to maintain a reasonable standard of living in retirement above the state pension. At the current highest rate, the state pension pays a little over €13,000.
Ms Humphreys said last month that she was committed to the auto-enrolment plan which "a lot of work has gone into", but the Government is bracing for pushback from businesses who will be asked to contribute to pension costs.
However, the current system is not seen as sustainable, with up to one-third of workers not having any supplementary income beyond retirement above the state pension.
The move will have a big impact on businesses with ISME CEO Neil McDonnell saying they need a lead in time to get to the higher contributions.
Separately, Fine Gael has been warned by the country's largest trade union that it risks signing its "political death warrant" if the pension age is changed.
In her address on the opening day of the Siptu Biennial Delegate Conference in Sligo, Siptu deputy general secretary Ethel Buckley said: “Let us be crystal clear at this conference here today and say to Minister Heather Humphreys, ‘minister, our union is putting you and your party on notice. If you cast aside all the evidence, if you ignore all the opposition, if you scorn the public outcry and increase the pension age to 67, you will be signing your party’s political death warrant and Siptu members will make sure of that'.”
Last year, the Pension Commission report said the pension age should rise to 67 by 2031 and then to 68 by 2039.
However, the Oireachtas committee on social protection said the age should not go beyond its current 66.
Ms Humphreys has said any changes to the pension scheme would be led by a Commission on Welfare and Taxation report.
She said, however, that the rate of workers per pensioner was due to fall from 4.5:1 to 2:1 by 2050 and "this is not sustainable".
“It’s a complex issue. There’s a lot of difficult decisions to make here."