'700,000 to miss out' on auto-enrol pension plan
Thousands of people are set to lose out on the State's new auto-enrolment pension scheme, which is already being heavily criticised for being years behind schedule.
Pension consultants Mercer said around 700,000 people who should be opted into the new system look set to be excluded.
The scheme is not due to be launched for another two years, despite being 20 years in gestation.
Some six out of 10 private sector workers will have only the State pension to rely on in retirement as they are not members of an occupational or private sector scheme.
Social Protection Minister Regina Doherty last week announced more details about how the scheme will work, following a Cabinet meeting.
A key change from proposals previously announced on auto-enrolment will mean a more modest timescale for increasing the contributions of employees and employers.
The new scheme is due to be launched in 2022. It will apply to 585,000 private sector workers who have no pension provision at present.
These people will be automatically opted into the new scheme. Those aged between 23 and 60 and earning more than €20,000 will pay 1.5pc of their pay for the first three years.
Their contribution will rise by 1.5pc every three years after that, until it reaches 6pc of their wages at the beginning of year 10.
Employers will make the same contribution, under the plan signed off by the Cabinet.
However, Mercer said that another 700,000 workers who should be opted into the scheme will not be automatically enrolled.
This group is made of those earning less than €20,000, the self-employed and those outside the age criterion, Caitriona MacGuinness of Mercer said.
No decision was made by the Cabinet on what the State is set to contribute into the scheme. Ms Doherty said this has yet to be decided.
Ms MacGuinness said this was the biggest challenge for the new scheme.
Under current pension arrangements, low-income workers get tax relief of 20pc on their contributions from the State. For higher-rate taxpayers, the relief is set at 40pc.
Previously, the Government had proposed a 25pc State top-up. But Ms MacGuinness said the 25pc top-up initially proposed is worth far less than the tax relief received by a top-rate taxpayer, and is likely to have a negative impact on pension saving.
"Retaining the approach as initially proposed could cause adequacy and coverage levels to disimprove, which the Government clearly wishes to avoid."
She said it was important not to have two divergent tax approaches.