The Irish government is getting ready to introduce a new retirement savings scheme, called “auto-enrolment”, by the end of 2023. The first payments are expected to be made in 2024. This plan has been under preparation for almost twenty years and is finally approaching its completion. The primary goal of this program, according to Heather Humphreys, Minister for Social Protection, is to inspire more people in Ireland to save for their retirement.
So, what’s this auto-enrolment all about? Essentially, it’s a pension savings program initiated by the government with an aim to enhance retirement savings for Irish workers.
Currently, there are over 750,000 workers in Ireland without pension savings. This means they might solely rely on the State Pension, which is currently only €265 per week, for their retirement. This could significantly impact their standard of living post-retirement.
With auto-enrolment, employers will have to contribute to their employees’ pension plans. Workers who are currently not part of any pension plan, are aged 23 or older, and earn €20,000 or more per year, will be automatically included in a new workplace pension scheme. This plan will be jointly funded by their employer and the State.
One interesting aspect is that while joining is voluntary, the default setting is to be included – that is, you’re ‘opted in’ unless you decide to ‘opt out’. If a worker opts out after six months, they will be automatically re-enrolled after two years. The aim is to nudge workers to realise the significance of saving for their retirement via a pension scheme.
Here’s a rough idea of how the savings might work under auto-enrolment: for every €3 you save, the government will contribute €1, up to a certain limit. So, if you save €100 a month, the government will add €33 to it. Moreover, your employer will be required to gradually match your contributions, starting at 1.5% and rising to 6% by the tenth year.
If you’re already part of a workplace or company pension plan, nothing changes for you when auto-enrolment begins. Currently, employees have to decide to join a pension plan, but with auto-enrolment, employers will have to offer a workplace pension to all eligible employees.
Most large employers in Ireland already have pension plans, but joining these plans is often voluntary, so not all employees are members. Employers will need to decide whether to expand their current plans to all employees or to let non-members join the new State auto-enrolment system. Smaller employers also need to make this decision.
Ireland is one of the few countries in the Organisation for Economic Cooperation and Development (OECD) that doesn’t yet have an auto-enrolment or similar system to boost pension savings. In the UK and New Zealand, auto-enrolment has proven extremely effective in expanding pension coverage. Here at MBC Financial, we view its introduction as a major positive step, potentially helping an additional 750,000 workers save for retirement. We see this as a once-in-a-generation opportunity to significantly improve the retirement savings landscape in Ireland.
MBC Financial and the Broker market will not be involved in setting up any of the Auto-Enrolment Pension Schemes for Employers. This is completely between the Government and the Employer.