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New pension scheme needed to pay for 'generation rent' who will never own a home when they retire

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Social Protection Minister Heather Humphreys

Social Protection Minister Heather Humphreys

Social Protection Minister Heather Humphreys

The Government has privately conceded that the new auto-enrolment pension scheme is needed for the increasing number of older people who will still be renting when they retire, the Irish Independent can reveal.

A confidential Cabinet memo prepared for ministers states that the new pension scheme will be “particularly important” as home-ownership rates are in decline and an increasing number of older people need enough income to meet the cost of rent during their retirement.

“An increasing number of older people will need sufficient income to meet rental costs during their retirement years,” the memo states. “The expansion of pension coverage is key to addressing this challenge.”

It comes as Social Protection Minister Heather Humphreys outlined the details of the new auto-enrolment pension scheme which will see the Government pay €1 for €3 an employee saves for their retirement. Employers will be required to match employee contributions up to 6pc of salaries below €80,000.

Ministers were told that without the new scheme there will be “considerable further strain” on the “already unsustainable” State pension system.

Official Government data suggests that just over 750,000 private-sector workers between the ages of 23 and 60 and earning in excess of €20,000 per annum are currently without a supplementary pension. 

The rate of home ownership in Ireland has been steadily declining for decades with the most recent Central Statistics Office (CSO) figures showing it has fallen from a peak of 79.3pc in 1991 to 68pc in 2016.

Research by the Economic Social Research Institute (ESRI) also shows that home ownership rates among recent generations have fallen substantially. While more than 60pc of those born in the 1960s lived in a home they or their partner owned by the age of 30, this had fallen to 39pc for those born in the 1970s and 32pc for those born in the early 1980s.

Rates of home ownership have tended to level off by age 45 for previous cohorts, with each successive generation less likely to live in owner-occupied housing than the last, the ESRI said in a report published last year.

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The economic think tank said last year that because of declining rates of home ownership across generations “increasing numbers of young adults are exposed to the private rental market, where existing affordability issues have been exacerbated by rapidly rising rents in recent years”.

Ms Humphreys said all workers without pension will be required to pay into the scheme for at least six months once they turn 23 years old.

They can exit the scheme after six months but will be automatically re-entered into the pension plan after another two years at which time they will again be required to make contributions for half a year.

An employee can claim back their contributions if they want to exit the scheme but will not get the contributions from employers or the State.

The Government will consider whether older employees can make lump-sum contributions to the auto-enrolment system at a later date. This would mean people who are closer to retirement could take more advantage of the scheme. However, she said at present the scheme is targeted at the around 750,000 workers who have no pension.

She said people with private pensions can enter the scheme but will have to stop contributions to their existing plan. 


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