AM Financial is a financial consultant. We provide pension advice to our clients in Malahide, Portmarnock, Swords and beyond. With recent changes in the Finance Act, we have may clients setting up PRSA's with us. Please come and speak to us about your pension and retirement savings.
This blog is about changes coming down the track in pensions. Pension auto-enrolment has had many delays. The updated launch is scheduled for this year, 2024.
What is pension auto-enrolment ?
Here is the quick and dirty: the government cannot afford to support everybody with generous pension payments in retirements. Most people are not saving for retirement. This is a road runner heading for the cliff edge scenario. So the idea of auto-enrolments is to force people to save for their retirement.
There are carrots thrown in that should make it appealing to most people. And this kind of idea is in operation in every other OECD country and seems to work well.
I have seen lots of news stories but is anything actually happening ?
The idea had been to start in 2022 but it was delayed with Covid. In the last months, progress has been made and the idea is to have this in place in the second half of 2024.
How will it work ?
For those who don't have a pension scheme at work, you may be auto-enrolled in these scheme. For every €3 of savings you make, your employer will add €3 and the government will add €1. These savings will accumulate in a fund and the benefits will come to you at retirement.
The benefit will complement the State Pension which everyone will still receive.
Who will be included ?
All private sector employees between the ages of 23 and 60 and earning over €20,000 per annum and without existing pension will be automatically enrolled.
It is estimated that this will include 750,000 people !
People will have the option to opt-out. However, the experience in other countries is that most people stay in.
Why is this being done ?
Only one in three private sector employees have a pension. It tends to be the lower-paid that do not have a pension. A pension is a tax-advantaged way to save for retirement and the idea is to bring this to everybody.
The State Pension will still stay alongside this. At a maximum of about €14k per annum, it will be insufficient for many.
Who pays ?
The employee begins by contributing an amount equal 1.5% of gross salary and this increases – up to a maximum of 6%. The calculated amount is deducted from your net salary.
This contribution is matched by the employer (up to a ceiling of €80,000 employee earnings).
Also, the government propose to contribute €1 for every €3 of the employee.
In the future, a maximum of 14% of salary could be going into the pension plan every year = 6% from employee + 6% from employee + 2% from government.
This is summarised in the table below
Employee Employer Government Total
Years 1 - 3 1.5% 1.5% 0.5% 3.5%
Years 4 - 6 3% 3% 1% 7%
Years 7 - 9 4.5% 4.5% 1.5% 10.5%
Years 10+ 6% 6% 2% 14%
What happens to the money saved ?
The money saved is invested. Over the long-term, this money is highly likely to grow and provide increased retirement funds.
There are four fund choices. The choices are low risk, medium risk and high risk. The fourth choice is the default one and is a lifestyle choice. It invests in higher risk funds at the beginning but moves to lower risk funds as you near retirement.
What if I move jobs ?
A new state body, the Central Processing Agency (CPA), will manage the process. You will keep your pension even as you move jobs.