Employees to work to 68 and pay into mandatory pension

ORDINARY employees will be obliged to pay a pension tax and work until they are 68 under a national framework unveiled by the Government.

The mandatory pension scheme will be introduced in 2014 and involve workers on an average industrial wage of €30,000 per annum paying €18 a week.

This will be matched by a €9 employer contribution and also €9 from the State.

When the person retires, this pot is expected to be worth in the region of €104 a week, according to estimates. However, no returns will be guaranteed by the state.

In other income bands, those earning €20,000 will have to pay €10 a week and high end earners, taking in up to €100,000 a year, will pay €35 a week.

The eventual payments for these two bands will typically return between €59 and €200 a week, depending on whether the employees opt for low or high risk investment schemes.

It will be paid on top of the State pension, which Social and Family Affairs Minister Mary Hanafin said will be kept at 35% of the average industrial wage.

Lower paid workers will not be eligible to join because Ms Hanafin said the State pension will be sufficient compensation.

People on existing defined contribution schemes will be allowed switch to the State sponsored programme when it comes into effect.

Meanwhile, all workers under the age of 62 will have to work for longer.

From January 2014, the sState pension age will rise to 66, and by 2029, it will hit 68 – this will affect anybody who is 49 or younger in 2010.

Taoiseach Brian Cowen said the current system is unsustainable given the country’s aging population.

“The inescapable truth is that we either provide for our own pension needs or we ask our children and grandchildren to bear the full cost. I believe we must ensure that the burden of provision is spread fairly across the generations.”

The mandatory pension, or auto-enrolment scheme, is a key component of the framework and will be managed by a central pension agency.

It will see all workers automatically signed up to a state sponsored pension plan, which will be administered on a micro level by employers. Ms Hanafin accepted this will place a cost and work burden on small businesses.

Workers can opt out of the scheme after three months and have their payments returned. They can also take breaks at various points in their career.

However, everybody who avails of the opt-out will be automatically signed up again every two years.

The Government expects between 65%-70% of workers will be a part of this scheme.

Fine Gael’s social and family affairs’ spokeswoman, Olwyn Enright, said there was nothing radical in the plan and it would only serve to prop up the pension fund industry.

SIPTU’s Jack O’Connor said the long-awaited plan was worse than expected and the contributions from the State and employers was inadequate.

In contrast, IBEC director Brendan McGinty said the mandatory requirement for employers to part-fund the pensions would only fuel wage demands.