Young people earning less than €20k can afford to pay into pension scheme as many are still living at home, TDs told

Otherwise, young people, women, part-time workers, carers, and vulnerable households and individuals who must be earning more than €20,000 to qualify will lose out, warned Insurance Ireland.

An estimated 750,000 workers will be automatically enrolled in the scheme that has been promised for decades

It is due to be rolled out from January next year and will be funded by workers, employers and the state.

Politicians and insurers cast doubt on whether it will be ready on time at the Joint Committee on Social Protection this morning.

The Government aims to prevent hundreds of thousands of workers who will rely on the state pension falling into poverty in their old age.

When fully established, it is estimated that a worker earning €35,000 a year will accumulate a fund of €293,000 over their working life, excluding investment returns.

Moyagh Murdock, chief executive of Insurance Ireland, said the future automatic enrolment regime needs to include those who need it most.

She said the outline legislation includes people in employment between 23 and 65 years of age and with an income of more than €20,000 annually.

In the UK, if they were to do the scheme again, she said they would lower the £10,000 threshold to qualify. In New Zealand, she said there was no threshold and the government there had added a $1,000 “kickstart” to encourage workers to stay in the scheme.

“Many lower paid workers are younger people. At that age of less than 23, many of them are still living at home and this is a good savings scheme and it actually brings them into the practice of putting money aside for their long term financial well being,” she said.

She said they probably can afford it more than is estimated as they do not have the demands of family, mortgages, or household bills.

They will benefit from the effect of compound interest if they start saving early, she said.

She said part-time workers, particularly women caring for their children and families, would be disadvantaged by the €20,000 wage threshold to qualify for the scheme.

“The gender pay and pension gap are already a substantial challenge for our society and while automatic enrolment is not the answer to closing this gap, it should not be allowed to crystallise the issues by excluding all efforts women can take to close the gap for themselves, or indeed for their employers to do so.”

The group criticised a lack of flexibility in terms of workers being unable to top up their contributions or transfer their pension under the proposed scheme.

Dr Barra Roantree, of the Economic and Social Research Institute, said fees should be capped and kept as low as possible. He said paying for the management of a private pension is the biggest purchase many people will make in life after buying a house.

He said automatic enrolment is an effective way of raising private pension coverage.

The economist said evidence from the US and UK where similar schemes have been introduced suggest this can happen by simply “defaulting” people into plans.

This would result in the largest increase in pension provision for those who would otherwise have saved least, he said.

However, he said the evidence from other countries suggests no change in the structure of tax relief on pensions is required for automatic enrolment to achieve its aim.

The state will pay €1 for every €3 saved by an individual, which is in effect a 25pc rate of relief in the new scheme.

This would represent a change from the current regime where income is exempt from tax when paid into a pension, and while returns accrue, but taxed when funds are withdrawn.