Irish Examiner
Alan Healy
13th December 2022
Elements of the proposed scheme have been criticised and could widen the gender pension gap further
Elements of the planned new auto-enrolment pension scheme have been criticised for potentially widening the existing gender pension gap.
The Government gave auto-enrolment the go-ahead earlier this year and it is envisaged the system will become operational with the first enrolment of participants in early 2024.
A new legislative bill is expected to be published in the first quarter of 2023, with plans to have it written into law by the end of the year.
Under the proposed scheme, employees aged between 23 and 60 and earning over €20,000 who are not already in a workplace occupational pension scheme will be automatically enrolled. Workers can then opt out after six months, but there will be a mechanism in place that enables them to be enrolled once again after two years.
However, John Kearney, director of corporate business development at Cork financial planning firm Provest, criticised some elements of the proposed scheme, including the lack of flexibility to increase payments or make lump-sum contributions to cover any periods of unpaid leave or career gaps.
He said this could result in worse retirement outcomes, particularly for women, and potentially widen the existing gender pension gap further.
Under the scheme, contributions will start at 1.5% of gross income, being increased on a phased basis over a 10-year period to 6%. For every €1 saved by the employee, the employer matches this with a €1 contribution, subject to an upper limit on a salary of €80,000. The State will also make a contribution at a rate of €1 for every €3 saved by the employee, which is equivalent to 25% tax relief.
Ireland is the only country within the OECD without a mandatory or quasi-mandatory retirement savings scheme. Auto-enrolment takes place in other countries such as Australia and New Zealand.
When Britain introduced auto-enrolment in 2012, pension coverage was below 50%, including public sector workers. It now stands at about 80%.
According to the CSO, just 56% of employees in Ireland have an active pension, with that dropping to 35% in the private sector.
Despite some challenges, Mr Kearney said auto-enrolment would significantly increase the number saving for retirement and will result in people not being solely reliant on the State pension in retirement.
"This is most welcome because our rapidly ageing population is going to place an intolerable strain on the State pension. While there are currently between four and five people working in proportion to the number of pensioners, this figure is expected to fall to two working people to every pensioner in 2050."