Wednesday 22 May 2019

Comment: Auto-enrolment pensions scheme is a hassle-free way of getting young on board

When you're in your 20s, chances are your pension is not top of the pile when it comes to your list of priorities. Stock Image: Getty Images
When you're in your 20s, chances are your pension is not top of the pile when it comes to your list of priorities. Stock Image: Getty Images

Anne-Marie Walsh

Selling the notion of making pension payments to young workers is a politician's nightmare, but an automatic scheme would get them over this hump.

When you're in your 20s, chances are your pension is not top of the pile when it comes to your list of priorities.

But paying in 5pc of your wages - be that €100 or €200 a month - from the start of your career is far easier than trying to make up for lost time years later. You could be paying 20pc or 30pc in years to come and still not be able to catch up with someone who enlisted 40 years ago and now has full service.

Of course, there are already options for the pension-less. Many workers can sign up to their company's pension scheme or set up a PRSA if that's not available. But the overwhelming evidence is that they're not.

Two-thirds of private sector workers have no pension. In the public sector, where a pension is the default position, the numbers with them is almost 100pc.

Setting up a 'second tier' scheme was one of Leo Varadkar's hot topics when he was social protection minister, and Joan Burton's before that, but there hasn't been much noise about it of late.

It's not being promised solely out of the goodness of their hearts. The coffers are already heaving with the burden on the State pension as more people, who are living longer, are relying on it. And it's only going to get worse.

Hence the Government's decision to raise the age at which you qualify for it to 66, and you will have to reach 68 before you can draw it by 2028.

Mr Varadkar, in his former role, said the first members of an auto-enrolment scheme should be signed up in 2021, although it hasn't gone through the consultation process yet.

A big advantage for the Government if it pushes the plan over the line is that it doesn't really have to sell it. If it's anything like the one that was set up in the UK a few years ago, it will sell itself.

Workers who are eligible won't even have to think about it. Once you are over 22 and earning more than £10,000 (€11,320) you are automatically enlisted.

It's not compulsory but the truth is, it's more hassle to get out of than into. And if you opt out, you have to keep 'opting out' because employers are obliged to enrol you every three years.

A major incentive for workers to stay is the fact that their employer must contribute. As things stand, many do but there are those who don't.

But there are risks. If contributions are too high, it could add to the number of renters who never get a foothold on the property market. And if we follow the UK example, it will not cover the self-employed, giving rogue employers an incentive to hire more on a bogus basis.

Irish Independent

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