Pensions overhaul: The average worker could make a pot of €650,000 under the landmark plan

Cabinet will today approve the largest pension restructuring in history, forcing 750,000 workers to save money for their retirement.

According to the groundbreaking reform, employees between the ages of 23 and 60 with an income of more than 20,000 euros who do not yet have a private pension plan will automatically be included in a pension plan from 2024.

The scheme, which is estimated to cost an estimated €2.8 billion in the first decade alone and aims to defuse the pensions time bomb, requires workers to contribute 6 percent of their salary towards their pension, with their employer required by law is to take over this sum.

The government then pays €1 for every €3 an employee saves – similar to the Special Savings Incentive Account (SSIA) program introduced in the early 2000s.

This means that a young worker earning €40,000 a year could end up with a pension of more than €650,000.

Workers are automatically enrolled in the program but can opt out if they do not wish to continue.

The contributions to the automatic registration system will initially be phased in.

For the first three years, workers contribute 1.5 percent of their salary, supplemented by their employer, and the state adds another 0.5 percent of the workers’ original contribution.

In years four through six, workers pay 3 percent, which in turn is supplemented by their employer, while the state pays an additional 1 percent into the pension system. In years seven through nine, the percentage payments are 4.5 percent for employees and employers and 1.5 percent from the government.

After 10 years, employees and employers pay 6 percent and the state 2 percent.

This means that a €40,000 23-year-old contributes around €143,501, which is topped up by his employer throughout the life of the scheme, while the state adds €47,834.

According to calculations, the employee will have a pension pot worth around 666,588 euros.

The scheme will be capped at €80,000 of an employee’s gross salary, but people earning above that amount can still make additional contributions to the scheme.

However, employers are not obliged to top up the amount.

Launching the program today, Social Protection Secretary Heather Humphreys will say that “the young people who are tomorrow’s retirees deserve the same benefits as those who are retiring today”.

She will also highlight the small number of people planning for their retirement, highlighting efforts to “build a culture of saving for your retirement.”

Employees are automatically included in the system, but can opt out if they do not wish to contribute further.

They can also be reinstated into the system at a later date when their financial situation improves.

A person with a private pension must end their current plan if they wish to enter the state system.

Employees’ pension contributions are invested in a so-called “balanced and well-diversified default fund”.

However, there will be three other fund options for employees who want to invest their money at different levels of risk.