Auto-enrolment pensions help us save for future...
State strategy to help provide for our future
FOR those who look into the pensions landscape in this country and see a Saragossa sea of intertwining spaghetti-like rules and regulations, there is now another option thrown into the mix for us to consider.
To be fair this is a long overdue development and we have lagged behind European neighbours in providing an auto-enrolled pension product.
Heather Humphries, the Minister for Social Protection, is bringing this through the Oireachtas and they say it should be going live at the start of next year, but lots to do before that.
The pension would be payable in addition to the State pension, currently nearly €277 per week, which is assuming that’s still available in years to come.
The problem facing the Government is the subsidising of huge numbers in retirement who have little or no pension other than the State pension.
An auto-enrolment pension would take considerable pressure off future Government coffers. It is noted up to 145,000 pensioners live in income poverty, so getting them to provide for themselves over the years will help alleviate this.
Figures wise, the Government expects 800,000 new pension savers will be created by gently guiding the laggards who are not paying into a pension, either privately or at work through an occupational scheme, into one through a semi-mandatory process.
The auto in auto enrolment means you will be automatically signed up for this unless you opt out. Employees earning over €20,000 per year, aged between 23 and 60, and who aren’t already in a pension scheme at work can access this.
So how does it work?
Think of it as a piggy bank, and for every €3 you put in, your employer puts in €3 also. Then the Government comes along and puts in another one euro. So in theory, your €3, gets €7 in the piggy bank. Not bad. You start off by putting in 1.5% of your salary, but your contribution gradually goes up over the years to 6% after year 10. For example if you were on a salary of €40,000 it would start off with you putting €600 away, your employer chipping in another €600, and the Government €400. So your €600 turns into €1,600 in the piggy bank. This will rise in stages every three years over the years so by year 10 there’ll be €5,600 going in (you putting in 6 %, your employer matching it, and the Government 2%).
The auto in autoenrolment
The idea of auto -enrolment is that if many of us had to make a conscious decision, a pension would not get started at all. So this decision is taken out of our hands, unless we make a conscious decision not to go into it, hence the decision to opt-out and not opt-in is yours. This is known as a psychological hack. This means all employees not already contributing to an existing employer pension scheme who are between 23 and 60 and earning €20,000 or more across all employment, will be automatically enrolled in the new scheme unless they opt-out.
The Soprano Clause
Of course, you have the option to get out of the scheme after six months, but to paraphrase the Sopranos line; just when you thought you were out, they pull you back in. You are automatically re-enrolled after two years again. The initial six months lock in is presumably to get contributors used to it and forget about it. If you go into it, let it run in the background and come to retirement, hey presto, you are on the way to building a nice pot of money to buy retirement benefits. More of that in another issue.
Talk to your employer if you have no workplace pension scheme, and check out the CCPC and Gov.ie sites to keep yourself informed.
‘‘ Government expects 800,000 new pension savers will be created