Almost 600,000 people will be auto-enrolled in retirement saving schemes

Almost 600,000 workers from the age of 23 and on salaries of €20,000 or more will be auto-enrolled in retirement saving schemes under pension plans.

Social Protection Minister Regina Doherty announced the automatic pension saving scheme, which will begin in 2022 but will also allow workers opt out.

With two-thirds of private sector workers without pension plans, the government say the new scheme will supplement the state pension but not replace it.

Ms Doherty explained:

“Some people just aren't interested [in a pension] and don't think about it until it is too late.”

Under the plan, agreed at Cabinet yesterday, current and new employees aged between 23 and 60 years and earning €20,000 or more will be automatically enrolled. This will amount to 585,000 workers, said Ms Doherty. However, workers will be signed up in phases.

Contributions during the first six months in the scheme will be compulsory, but workers can opt out after that. There will also be suspension periods within which contributions can cease.

Employers will match amounts paid by workers. And while the State will make contributions, Ms Doherty said details about this had yet to be decided by the Department of Finance.

The new model is being introduced to stop workers facing a “pension cliff”, she said.

Under the scheme, the initial contribution rate for workers will be 1.5% for three years which will increase by to a maximum of 6% at the beginning of year 10.

Ms Doherty added:

“A key feature of this automatic enrolment system is that it will be a ‘pot-follows-member’ design. This means that an employee’s pension contributions will be collected in the same pension ‘pot’ even when an employee changes employer, or if the employee has multiple employers. This is one of the critical lessons that we learned from examining similar systems internationally.”

Employees already involved in schemes will not be automatically opted into the new scheme. The new funds will operate on a defined contribution basis.

The final design for the scheme will be decided at the end of the year and announced early next year, Ms Doherty added.

The government move comes after a recent risk report for Cabinet. This warned that the number of people entitled to the State pension is set to more than double over the next three decades.

There is expected to be more than 1.4 million people able to claim a State pension by 2055.