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Ministers back bill on pensions ‘opt-out’ system

The Government has approved the general scheme of a bill that will provide for the automatic enrolment of employees in pension schemes.

The bill will now go to the Joint Oireachtas Committee on Social Protection for pre-legislative scrutiny.

The Government says that the Automatic Enrolment (AE) Retirement Savings System Bill is designed to simplify pensions decisions for workers, and make it easier for employers to offer a workplace pension.

Under the auto-enrolment system, employees will have access to a workplace pension-savings scheme co-funded by their employer and the State.

Employers to match contributions

Although participation is voluntary, it operates on an ‘opt-out’ rather than an ‘opt-in’ basis. Around 750,000 people are set to be included in the new scheme, details of which were announced earlier this year.

To encourage workers to participate, people who choose to remain in the system will have their pension savings matched on a one-for-one basis by the employer.

The State will also provide a top-up of €1 for every €3 saved by the worker.

This means that for every €3 saved by the employee, a further €4 will be invested by the employer and the State combined.

Early-2024 start targeted

Heather Humphreys (Minister for Social Protection, pictured) described the approval of the bill as an “historic milestone” in the journey towards enabling people who were currently without occupational-pension coverage to save for their retirement.

“After decades of talking about auto-enrolment in this country, I am pleased to say the 'AE train' is now very firmly on the tracks, and leaving the station ahead of its introduction in early 2024,” she stated.

The new system includes the following features:

• All employees not already in an occupational pension scheme, who are aged between 23 and 60 and earning over €20,000 across all of their employments, will be automatically enrolled,
• AE will be gradually phased in over a decade, starting in 2024, with both employer and employee contributions starting at 1.5% of gross salary, and auto-escalating every three years, until reaching the maximum contribution rate of 6% from the tenth year onwards,
• The employer’s contributions will match those of the employee, and the State will also make a contribution at a rate of €1 for every €3 saved by the employee,
• Those who are auto-enrolled can opt out, or suspend their contributions, after six months of mandatory participation,
• Where a member opts out or suspends their contributions, they will be automatically re-enrolled after two years, after which they may opt-out or suspend again after a further six months,
• A Central Processing Authority (CPA) will be established to manage the AE system,
• Commercial investment companies will compete through an open tender for the role of ‘registered provider’, and will invest contributions on behalf of AE members,
• Participants will have a range of savings funds to choose from – including a default fund for those who prefer not to choose,
• Drawdown will be aligned with the State pension age.