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Thursday 22 February 2018

Everyone will have to pay for their pensions

Charlie Weston and Aine Kerr

ONE million workers who have not made any provision for their retirement incomes will be forced to pay into a pension scheme, the Irish Independent has learned.

The new system, which will be announced tomorrow by the Government, will mean all those who are in a job but not in a pension will have to join one.

In practical terms, such a move could mean workers effectively taking a pay cut of 5pc, as this is the likely contribution that would have to be made to a mandatory pension.

Currently, more than half of those in employment do not have a pension.

The move is aimed at forcing low and moderate earners to save for retirement, rather than relying solely on the state pension, which is €230 a week for those with sufficient PRSI payments.

It will be possible to escape this mandatory pension, but only after a number of years.

The move will be announced as part of the Government's National Pensions Framework.

It comes after Taoiseach Brian Cowen confirmed a report in yesterday's Irish Independent, which revealed that the Government was planning to raise the retirement age.

It will increase the pension age from 65 to 68 in phases over the next 20 to 30 years.

The process of increasing the retirement age from 65 to 66 is expected to start in about four years, the National Pensions Framework will state.

Government projections show that the number of people aged 65 and over will increase from around 450,000 to 1.8 million by 2050.

In the absence of changes to government policy, over a quarter of national income will be spent on pensions, health and long-term care of the elderly in 40 years' time.

Increased life expectancy and related increased costs of pensions have prompted the Government to move towards a higher pension age.

As part of the framework, the new compulsory pension system will be introduced, but not immediately.

Such a move could prove controversial as low-paid workers are likely to resent being forced to make pension contributions, believing mandatory pension contributions would be a further drain on incomes at a time when pay cuts and high taxes are hitting hard.

Many of the million workers who do not have a pension are women who are in part-time employment and earning low wages.

A compulsory pension would be an automatic system, where people over a certain age are signed up to a scheme once they begin work but can opt out at a later date.

This is known as a "soft mandatory" pension system as it will be possible to sign out of it, or even draw out up to 25pc of the fund tax-free before -- or at -- retirement age.

The Government's 2007 Green Paper on Pensions spelled out how a soft mandatory pension scheme would work.

It suggested all those in work after the introduction of the compulsory system would be forced to join an occupational scheme.

Employees would have to contribute 5pc of income, with employers adding a further 2pc. The Government would then put 2pc of workers' wages into the fund, up to a maximum of €750 a year.

The Government has previously hinted at making pension plans mandatory for all workers.


As far back as 2005, the late former social welfare minister Seamus Brennan warned that the Government could not just sit back and do nothing about the ticking pension time-bomb.

Britain is due to introduce an auto-enrolment pension scheme for workers from 2012. Under the scheme, all employees will be obliged to join a workplace pension scheme unless they actively opt out.

The move to a compulsory scheme is effectively an acknowledgement that the introduction of Personal Retirement Savings Accounts (PRSAs) have not worked.

These so-called flexible pensions were introduced in 2003 with the aim of increasing coverage. But just 170,800 PRSA contracts have been opened since 2003.

Last month, Spain raised its retirement age to 67 for all people born after 1959, as part of measures to combat the crisis in the public finances. Britain will phase in a retirement age of 68 over the next 40 years.

Bank of Ireland is to brief its staff today on options to close the €1.5bn gap in its pension fund.

One of the options is a raising of the retirement age to 68 for bank staff.

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