By quickly answering these six questions I can tell you everything you need to know about the Government’s Auto-Enrolment plan.
With State finances struggling to maintain the State Pension for a growing retired population, not to mention poor private pension coverage, the Government is now (finally) implementing a compulsory* pension scheme.
Auto-Enrolment is an idea already introduced in several countries, in which employees are automatically enrolled in a workplace pension and effectively forced* to make pension contributions.
To start, the employee contributes 1.5% of income, the employer matches this 1.5%, and the Government adds 0.5%. The latter is equivalent to 25% tax relief. These contributions increase over the years, to 6%/6%/2% by year 10. Employer and State contributions will be capped at an employee gross annual salary of €80,000.
The Government is seeking to have the scheme in operation by 2024. *Opt-out is possible after six months but there is automatic re-enrolment after two years (with opt-out again possible six months later…).
It will apply (initially at least) to the approximately 750,000 workers who are between the age of 23 and 60 who are employed but are not enrolled in an occupational pension scheme.
You can choose where to invest your Auto-Enrolment pension from among four funds – conservative, medium risk, high risk, and a default ‘life-cycle’ investment fund.
And if you like this article, try this one: 5 Retirement Myths