The government’s auto-enrolment pension scheme, set to launch next year, could significantly improve retirement incomes for many workers in Ireland. According to an analysis by benefits consultants Willis Towers Watson, a 23-year-old worker earning the national average wage could expect an annual pension of €15,200 from the scheme, in addition to the State pension. This would provide a total retirement income of €29,620, or about 60% of their pre-retirement earnings.
However, the benefits are lower for older workers who will have less time to contribute before retirement. For example, a 46-year-old worker could expect an additional €5,200 per year from auto-enrolment, while a 56-year-old would receive just €1,800 extra annually. The analysis assumes that workers will contribute 1.5% of their income initially, rising gradually to 6% over 10 years, with matching employer contributions.
However, some pension specialists doubt whether these ambitious contribution targets can be achieved, given the significant increases involved and the impact on take-home pay and labor costs.
Auto-enrolment scheme’s pension impact
In the UK, which serves as a model for Ireland’s scheme, minimum employer contributions are 3%, with workers adding 5% including tax relief.
If Ireland’s targets are not met, it could undermine the scheme’s ability to deliver adequate retirement incomes. For those who will be automatically enrolled, it’s important to note that their pension savings will not be guaranteed by the State, as is the case with any pension plan. Contributions will be invested to grow over time, which involves some level of risk.
Reviewing the available investment options and considering one’s risk tolerance is crucial. Those who prioritize avoiding investment risk entirely may want to consider alternative savings vehicles with guaranteed returns, such as government bonds or savings accounts, although these may not offer the same growth potential as pension investments. Regularly reviewing one’s pension strategy and consulting with a financial advisor can help ensure alignment with personal financial goals and risk comfort level.
- IrishTimes.”Auto-enrolment could deliver retirement income of €15,000 a year”.
- IrishTimes.”Auto-enrolment may struggle to hit contribution targets, say pension specialists”.
- Independent.”Your personal finance questions: Will the money I save into the auto-enrolment scheme be guaranteed by the State?”.