Last week the government announced a new enforced pension scheme for employees aged between 23 and 60 years of age that their employers have to set up and contribute to, and to which the government will also contribute.

John Lowe of MoneyDoctors.ie has the details for the 750,000 employees affected who currently have no pension and who hope the State Pension – currently €253.30 per week – will still be there by the time they retire.

The pension is probably the best investment in Ireland today:

  • For every €100 invested into a pension, the government give you €40 back (if you are on the higher rate of tax)
  • It means you are up 40% even before any growth in the fund
  • The stock market average annual growth from 1991 to 2020 was 10.72%

Age thresholds already apply to those with pensions, occupational or personal including the self employed…

Age Limits

Up to 30 years of age

15% of net relevant earnings

30 up to 40 years of age

20% of net relevant earnings

40 up to 50 years of age

25% of net relevant earnings

50 years plus

30% of net relevant earnings

55 years plus

35% of net relevant earnings

Over 60 years

40% of net relevant earnings

Last week the government announced pensions for all whereby the employer and the government would contribute to those 750,000 employees who do not have any pension. The employee will be allowed to stop payments after six months but will be re-enrolled again after two years.

There is also a cap on salary eligible – €80,000. Over this amount no contributions will be made by the employer or the government.

Due to start at the end of 2023, this is the break down…

Years Employee Employer Government/State

1 to 3

1.5%

1.5%

0.5%

4 to 6

3%

3%

1%

7 to 9

4.5%

4.5%

1.5%

10 years +

6%

6%

2%

To give a simple example…

If a person aged 28 has a salary of €30,000 (and assume for 40 years, the salary is never increased), they will save:

  • in the 1st 3 years - € 3,150
  • in the 2nd 3 years - € 6,300
  • in the 3rd 3 years - € 9,450
  • in the 10th year - €126,000 (for 30 years)

Their total fund would be €144,900 of which they would be eligible to take 25% tax free (€36,225) with the balance going into an Approved Retirement Fund (€108,675 or €4,347 per annum).

Bear in mind that same person COULD invest a further 13.5% into a Personal Retirement Savings Account (PRSA) Additional Voluntary Contributions (AVC) separate to the government sponsored employer scheme to maximise the tax allowances available from year 1. At age 31, that person could invest up to a further 17% of his/her net relevant earnings into the AVC.

Even for those employees who have their own existing personal pension, it makes sense to avail of the new scheme as both your employer and the government are contributing to YOUR pension. If you need further advice, or as an employer wish to start a process, email me directly. Carpe diem.

For more information click on John Lowe's profile above or on his website.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ.