Employers put on notice ahead of State pension reforms
EMPLOYERS who ‘fail to meet’ their autoenrolment pension obligations will be subject to ‘penalties and possibly prosecution’.
Social Protection Minister Heather Humphreys is set to bring legislation to implement the long awaited reform to Cabinet today.
Approval of the legislation by the Government will be seen as a major milestone in what is one of the biggest reforms of the pension system in the history of the State.
There are currently about 800,000 workers in the State who have no occupational or private pension meaning they will be solely reliant on the State pension when they retire.
Auto-enrolment will mean that all employees across the State will have to participate in a workplace pension savings scheme which will be cofunded by their employer and the State.
The scheme will be mandatory for businesses, with Government advising: ‘If you fail to meet your auto-enrolment obligations as an employer, you will be subject to penalties and possibly to prosecution.’
Ms Humphreys is said to be ‘very keen’ to ensure the new system will be ‘easy to understand and communicate’ to the public.
Speaking on her way into Cabinet yesterday, Ms Humphreys said: ‘Auto-enrolment has been talked about for decades so I’m delighted to be bringing forward legislation for approval at Cabinet which will mean 800,000 private sector workers who currently don’t have a pension scheme will be enrolled into a pension scheme.
‘It means that when they retire, there’s going to be a pot there. So they’ll have their own pension scheme on top of the State pension.
‘It’s very simple. For every three euros you save, your employer matches the three Euro and the state tops it up with one (euro).’
She added: ‘Most people find when they retire, that they don’t have any pension provision, there’s a cliff edge drop in their income.
‘I want to stop with that. I want to make sure that when they retire, there’s extra money in their pocket. It’s good for society, it’s good for the economy, it’s good for businesses because there’s more money available to spend.’
Under the plans all employees who are not already in an occupational pension scheme and who are aged between 23 and 60 and earning over €20,000 across all of their employments will be automatically enrolled. Government sources have compared the new model to the ‘old SSIA scheme’.
Under the plans, employees will make a contribution that is matched by their employer and there will, in turn, be a further top-up from the State.
In practice this means that where a worker puts in €3, the employer also contributes €3, with the State providing an additional €1 top up.
For example, where an employee earns €20,000, in the first year they would have €700 in their pension pot.
As their rate increases, and if they stayed at €20,000 salary, by the 10th year, they would be putting in €2,800 per annum as the rate of pension contribution increases.
A person earning €45,000 per year and saving continuously for 40 years at the full contribution rate of 6% of their gross pay would end up with a savings pot of just under €750,000, sources told the Mail.
There has been a growing chorus of complaints from small and medium sized enterprises (SMEs) that the introduction of auto-enrolment would put yet more financial pressure on already struggling businesses.
However, in a speech earlier this year Ms Humphreys said that delaying auto-enrolment ‘simply is not an option’.
Compared it to ‘old SSIA scheme’