Every worker in the country could be forced to contribute up to 15% of their gross income into a mandatory pension scheme, according to a proposal by the Society of Actuaries in Ireland.
Only half of the working population has a private pension scheme, which will put huge pressure on the State pension in the future, according to the SAI’s Cathal Fleming.
In a major review of pensions in the country, the SAI recommends that a system of mandatory pensions for public and private sector workers, as well as the self-employed, should be introduced from 2019 onwards. It recommends that initially employees contribute roughly 2%-3% of their gross salary to the pension scheme, but that this would grow to an average of between 10%-15% over a 15-20 year period.
The Government would also make contributions to each pension either in the form of tax relief or a direct cash contribution similar to the SSIA savings scheme, although this may not be politically palatable over the near term because of the state of the national coffers, said Mr Fleming.
“It is important that every pension scheme is in the form of an individual account so that each person can see how much they have built up at the end of every year and it is not seen just as another form of taxation,” he added.
It is envisaged that the pensions would be managed by a combination of a government body and three or four private fund management firms.
The report found that auto-enrolment pensions would be less effective because international experience shows that there is a high level of exemptions and opt-outs with these schemes.
Ireland and New Zealand are the only two OECD countries that do not have mandatory pension schemes. The Minister for Social Protection Joan Burton announced last year that a mandatory or quasi-mandatory pension scheme could be introduced once the economy picks up.
The SAI said that it is releasing this paper to assist policymakers and contribute to the debate.
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