Radical overhaul coming for private pensions

Galway Daily business How much will I need to save for my pension

Private pensions in Ireland are going to be radically overhauled under new plans affecting hundreds of thousands of workers, which were approved by the Cabinet this week.

The Cabinet has signed off on draft principles for a new private pensions scheme which will automatically enroll workers who do not already have a plan.

The scheme will see employees contribute 1.5 percent of their salary, matched by their employer, a portion which will increase over the course of a decade.

After 10 years employees will be contributing 6 percent of their salary towards a pension plan.

The state will also contribute towards the plan, putting in one third the level of each employee.

By the end of the ten year period, the government will be putting €1 in the pot for every €3 that an employee saves, with their employer contributing another €3.

It’s estimated that this will cost the Exchequer roughly €2.8 billion over the course of the first decade.

The scheme, which will come into effect from 2024, will apply to employees between the ages of 23 and 60 who are earning more than €20,000 a year, and who do not already have a pensions.

It’s estimated that this will apply to roughly three quarters of a million people.

While contributions to the four funds will begin in 2024, automatic enrollment will commence immediately, and continue next year.

Minister for Social Protection Heather Humphreys said that an automatic enrolment system is needed to address a lack of pension coverage in Ireland.

It’s estimated that just 35% of private sector employees in Ireland have supplementary pension coverage, beyond the state pension.

This is below the average elsewhere in Europe, as many people lack information on pensions in Ireland.

“We all know that people are living longer. While this is very positive, we also want people to be able to enjoy their retirement years with some financial security,” Heather Humphreys said.

“However, for many people retirement seems a long way away and they think they have a lot of time before they need to think about a pension.”

“Some people may be of the view that the process of putting aside a little each week to provide for their retirement years is something to be considered next year, or maybe even the year after next.”

“However, that is not the case. If people want to retain a reasonable standard of living in retirement, they need to start saving as soon as possible,” Heather Humphreys added.

This new scheme will still be voluntary, but employees will have to opt-out of it, rather than choose to enroll.