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Over 500,000 set for smaller pension pot in new scheme

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Stock: Getty Images

Stock: Getty Images

Stock: Getty Images

Up to 585,000 workers may end up with smaller pensions than the Government had flagged, under a new scheme they will automatically be signed up to.

Details of a long-awaited 'auto-enrolment' pension scheme for those who would only have the State pension to rely on in old age have been unveiled.

But it is likely to mean it will take longer than expected for workers to get a significant fund together.

The scheme aims to help two-thirds of private sector workers who have no workplace pension, and is promised in three years time.

The new scheme will apply to workers between 23 and 60 who earn more than €20,000.

They will be automatically enrolled for six months - but can opt out after that and get a full refund.

Other workers can also opt into the scheme.

But details of the new scheme outlined yesterday mean employers and workers will make lower contributions towards it for longer than had been anticipated.

Workers will pay 1.5pc of their wages into the scheme initially and this will rise gradually to 6pc after 10 years. Their employer will make the same contribution.

An initial Government plan had meant contributions would have risen to 6pc after just six years.

It is now unclear how much the Government will contribute to the pot as Employment Affairs and Social Protection Minister Regina Doherty said this is not yet decided.

The Government's earlier proposal had said the State contribution would represent 2pc of wages.

But unless the Government's proposed contribution is increased, then the 585,000 workers eligible for the scheme will end up with a smaller pension.

Ms Doherty said the Government aims to have a system in place by 2022 that ensures all pensioners have enough to lead a comfortable life in retirement.

She denied that the new scheme would replace the State pension, which she described as the bedrock of pension provision.

Ms Doherty said the longer timeframe to increase contributions is due to employee and employer concerns.

But a senior Irish Congress of Trade Unions official last night said that it had demanded an even shorter timeframe.

Ictu social policy officer Laura Bambrick said: "In fact, in our comprehensive submission to the department's consultation we recommended a shorter introduction so as to ensure there is no further delay in guaranteeing workers have an adequate pension pot in old age."

The union body asked that the timeframe for a 6pc contribution would be just five years.

Employer group Ibec has argued that rapid escalation of contributions would hit competitiveness and would cause a significant numbers to opt out.

Irish Independent