The long-awaited auto-enrolment retirement savings scheme (AE) is edging ever closer with the Government setting a launch date of 30 September 2025.
The FDC Monthly Financial Column breaks down how this is great news for workers.
It will help to bridge the gap between income during ones working life, and in retirement.
Up to 800,000 workers that would otherwise have been solely reliant on the state pension will now have access to another income stream when they stop working.
But how will AE work, and how will it affect you?
What is auto-enrolment?
AE is an opt-out retirement savings scheme to provide every worker with access to a workplace pension to supplement income in retirement.
Although participation is voluntary, the scheme is on an opt-out basis meaning employees will automatically be enrolled, and later could choose not to contribute to the scheme.
Adrian White is a Financial Planner with FDC Financial Services within the West Cork Region.
Who will participate in auto-enrolment?
Currently there are over 800,000 employees in Ireland without retirement savings, AE will bring this cohort into a workplace pension for the first time.
Employees between the ages of 23 and 60, earning over €20,000 annually, and not already contributing to a workplace pension, will be automatically enrolled. Under 23s, and over 60s can opt in.
When can I opt-out?
Once enrolled you must stay in AE for at least 6 months.
If you opt-out after the 6-month period, your contributions will be refunded, and you will be automatically enrolled after 2 years if still eligible for AE.
What will it cost me, and what will be contributed for me?
Employee contributions will be a percentage of salary, increasing on a phased basis up to 6%.
Those contributions will be matched by the employer, with the Government providing a top-up, contributing €1 for every €3 contributed by the employee.
Earnings are capped at €80,000 for calculating the maximum employer and Government contributions.
What happens if I change job?
AE will provide a pot-follows-member approach meaning you can bring the same pension with you from job to job and continue to contribute to that pension.
I already contribute to a workplace pension; how will this affect me?
You will not be enrolled in AE if you already contribute to a workplace pension.
Workplace pensions will be measured against AE in time to determine which is best for the employee.
What happens to my pot if I opt-out, or move abroad?
The contributions made remain invested within your savings account, with no further contributions being made.
You can still access the retirement savings at your retirement age.
When and how can I access my benefits?
Retirement age is linked to the state pension age of 66.
There is no facility for early retirement.
Benefit drawdown will be facilitated through a lump sum at retirement (tax free up to certain limits), and a taxable income stream through an Annuity or other approved retirement products available.
A consequence of the spotlight being shone by AE is an increased engagement with retirement savings by employees and employers.
AE is undoubtedly a step in the right direction to make Ireland an even better country to retire in by providing every worker with access to a workplace pension and encouraging workers to take control of their own retirement savings, thereby reducing reliance on state pension entitlement alone.
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