The Minister for Employment Affairs and Social Protection, Regina Doherty, announced more details about the auto enrolment scheme that is going to be introduced to help people fund for their retirement. It is estimated that just 35% of private sector workers have their own private pension plan. This compares to 100% of public service workers where joining the pension scheme is mandatory.
Both employees and employers will have to contribute to the scheme.
The Minister wants this up and running by 2022. This is an extremely ambitious ask. A sophisticated computer system has to be designed and implemented in a very short period of time. It will also have to sync with the chosen providers systems so they can amalgamate the values of employees pensions across different providers.
Will providers be keen to be a ‘Registered Provider’? The maximum charge allowed is 0.5%. While this is good for the scheme members, it will be difficult for the providers to make money. Their initial contract will be for 10 years. Given a lot of the contracts will be at the lower end, the providers will be making very little from each policyholder.
Who will advise these people on their pension choices? Investing is not straight forward and people need to know where their money is going, what are the risk involved, what the expected returns are. Who will pay the fees to give advice on the scheme or will it be provided by the CPA?
I welcome the introduction of auto enrolment but I feel the government aren’t pushing it hard enough. A 1.5% contribution for 3 years is a waste of time. Someone on €20,000, will have contributed €1,800 to a pension after 3 years. After another 37 years of working, that money will be worth just €11,500 if it grows by 5% per annum…or €5,500 if you take inflation into account. It is the contribution levels that make the big difference to the fund at the end.
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