The government will pay €1 for every €3 a worker pays into their pension fund under a new automatic registration scheme due to be agreed by Cabinet this week.
Social Protection Secretary Heather Humphreys launches a memo on the long-promised pension scheme, which means anyone earning more than €20,000 will automatically be required to contribute to their pension fund.
Employers must reconcile employee contributions when the system is operational. However, given the financial impact this will have on employers, it is expected that this will be done in a phased manner.
The government expects a backlash from companies still trying to recover from the pandemic and grappling with the ongoing energy cost crisis that has escalated following the ongoing Russian invasion of Ukraine.
Ms Humphreys’ memo will seek Cabinet permission to begin the process of drafting legislation to underpin the automatic registration system, and it is hoped workers will be able to take advantage of the system sometime next year gain weight.
Several social protection ministers have considered introducing the system over the years, but none have reached the stage of drafting legislation.
Employees can choose not to but the government wants to encourage workers to plan for their retirement, as recent figures have shown that around 35 per cent of private sector workers have no pension.
This means that a significant proportion of retired workers will depend on the state pension of €253.30 per week.
A person dependent solely on the state pension has an annual income of €13,171.60.
The automatic enrollment system means older people are financially secure when they stop working once they have paid into the program. Similar systems already exist in the UK, Europe and Australia.
Ms Humphreys has previously pledged to keep the state pension even when the automatic registration system is operational.
“The statutory pension doesn’t matter,” she said. “That’s why I call it the foundation of our pension system.”
When former Social Protection Secretary Regina Doherty first outlined details of the automatic registration system in 2018, it said that employees could pay 1 percent of their salary into the system at launch, and that would increase to 6 percent over time.
The system was originally supposed to be introduced later this year.
Workers earning more than €75,000 could contribute to the scheme, but the employer would not have to top up contributions above that amount, Ms Doherty said.
It was also envisaged that workers would be able to choose a fund managed by a private pension provider, depending on their risk appetite. If they didn’t choose a fund, they would be put into a default fund.
Ms Humphreys has made some changes to the original plan, but it will be broadly similar to the plan outlined by Ms Doherty.
The government program commits to gradually deploying an automated registration system over a ten-year period.
https://www.independent.ie/business/personal-finance/pensions/state-will-pay-1-for-every-3-paid-to-auto-enrolment-pension-scheme-41493148.html The state pays €1 for every €3 paid to the auto-enrollment pension scheme