With a bit of luck, 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, auto-enrolment may be in place by the end of this year.
It has been bandied about for the over 20 years, however, it may now be too late for many of us to make the most of it.
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 €277.30 per week – will still be there by the time they retire.
The actual simple pension / PRSA 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
In 2022, 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, which is €80,000. Over this amount no contributions will be made by the employer or the government.
Due now to start at the end of 2024, 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 you are 28 years old with a salary €30,000 (and assume for 40 years, the salary is never increased)
- First three years - €3,150
- Second three years - €6,300
- Third three years - €9,450
- 10th year - €126,000 (for 30 years)
The total fund would be €144,900, of which you 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, resulting in €362.25 per month).
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 one.
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.
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.
