A I would advise you to go ahead, or at least go ahead and get advice! A Financial Broker will explain and tailor a plan for you and, if or when the compulsory scheme starts, you can review you situation at that point.
But what is this “compulsory scheme”? Also known as “auto-enrolment”, it is a new retirement savings system for employees, likely to be introduced in Ireland in the latter half of 2024. Currently in Ireland many employees do not have a pension scheme, which means they will be relying on the state pension when they retire. The objective of auto-enrolment is to ensure every worker has access to a workplace pension to supplement the basic state pension. The final details of the scheme are still to be fully agreed, however the scheme will require that all employees not currently contributing to an existing employer pension scheme, aged between 23-60 years and earning €20,000 or more, will automatically be enrolled in the new scheme.
The idea every worker has a private pension in Ireland is not new, in fact the concept, planning and implementation has been going on now for 16 years. However, in a recent survey, over 75% of people reported they had very little knowledge of the scheme and they had not received sufficient information about it.
So, what do you need to know?
Well for starters, while some use the term “compulsory”, a key feature of the scheme is participation is actually voluntary. All eligible employees will automatically be enrolled in the pension scheme, but after six months an employee can opt out or postpone if they wish. Once they have postponed or opted out of auto-enrolment, they have a two-month window to apply for a refund of their contributed money. They will be re-enrolled again after two years (with the opt out still available at this time).
The phase-in of the scheme will mean that contributions increase (by 1.5%) every three years or tri-annually. If you wish, after six months of each tri-annual increase, an employee has a two-month window, to receive a refund of their own contributions. Outside these timeframes you can also suspend contributions, though you will not be refunded. In each case the employer and state contributions also cease.
The scheme envisages matching contributions from employers and employees, with a 33% uplift of employee contributions from the state in lieu of income tax relief. The initial contribution proposed is 1.5% by both employer and employee, and a 0.5% state contribution, totaling 3.5% of an employee’s salary. Over the first decade of the scheme, that contribution level will rise to 6 per cent each from worker and employer and 2 per cent from the State every year. These contributions will apply to earnings up to €80,000. That is expected to be about 750,000 workers.
While the target market, may be those currently without a pension, this legislation will highlight challenges for existing schemes that may not wish to operate two systems, with the likelihood that the Department of Social Protection will make recommendations on the prescribed standards and contribution levels for pension schemes operating outside of auto-enrolment are compulsory.
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This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.