Cabinet agreed to draft legislation for a new pension scheme for private sector workers. It is estimated that just 35% of private sector workers have a pension.
The new scheme will cost the Exchequer almost €3 billion every ten years and is due to come into effect from 2024.
For example a worker earning €35,000 per year will accumulate a fund of €293,000 over their working life, excluding investment returns. It is expected that three quarters of a million private sector employees, aged between 23 and 60 and who earn more than €20,000 a year, will be automatically signed-up.
Employers will be obliged to match the employee contributions. Employees have six months to opt out or suspend participation. Those that opt out will be automatically enrolled again after two years.
There will be four pension funds to choose from ranging low risk to high-risk funds. Those that do not choose will be given a default option based on their age. People moving jobs will not have to change schemes.
Initially, those included in the auto-enrolment will contribute 1.5% of their gross earnings. It will be the same for employers. The State will contribute 0.5%. Eventually, it will get to a point after ten years where employees and employers will contribute 6% and Government 2%.
Under the new scheme, each employee will save €6 for every hundred earned and this will be matched by the employer. Instead of tax relief, the Government will give one euro for every three euro saved by the employee.