Workers ‘will carry all the risk’ in new pension scheme
OVER a million workers to be auto-enrolled in a new State-sponsored scheme will get no guarantee of the pension they will end up with at the end of their working lives.
Social Protection Minister Regina Doherty’s department has confirmed that the scheme promised in three years will be defined contribution, meaning pensions will depend on investment returns.
Actuaries warned that workers will bear all the risk – and there will be no certainties in relation to payments.
This is in stark contrast to the pensions enjoyed by politicians and public servants. They are guaranteed benefits based on their final or average salary, even though they are not paid out of a fund but on a pay-as-you-go basis from the State coffers.
The scheme will target workers who would otherwise be reliant on the €243-a-week State pension. They represent a massive two-thirds of the private sector workforce.
A Government blueprint to tackle the pensions crisis does not specify what contribution will be made by workers, employers or the State.
Private sector workers without occupational pensions and above a certain age and income, the levels of which are as yet undecided, will be automatically enrolled in the scheme. They will be allowed to opt out after a minimum period, which is also undecided.
Partner at Lane Clark and Peacock actuarial consultants Roma Burke said guarantees cost money and returns may be low if the scheme starts out with a small level of contributions.
“There will be investment in stock, government bonds and other investments and things can go down as well as up. The risk is with the individual.”
The roadmap says there could be a total contribution of 14pc divided between the worker, employer and the State, as an example. Based on this, Ms Burke calculated that someone on a salary of €36,000 who started saving at 25 and retired at 68 could expect €9,365 a year in retirement.