I keep reading that a system for automatically enrolling workers in a State pension system is imminent, but it never seems to arrive.  As a result I’ve held off starting a pension until auto-enrolment is available – is that wise? 

I’m a top-rate taxpayer in my late fifties, so paying 52% tax plus PRSI and USC.  I have worked in Ireland and abroad over the years, but my current employer does not have a pension scheme.

– VT, Co Wicklow

Auto-enrolment has been talked about in Ireland for nearly two decades – but has yet to create a cent of pension wealth for anyone.

Auto-enrolment is a good idea…

There’s no doubt that auto-enrolment – the practice of automatically signing up workers to pay into a pension – is a positive development for the people of Ireland.  And legislation to make it happen is inching through government departments.

…but its slow progress is a problem for our pension wealth

Sadly, the long-promised introduction of auto-enrolment as a solution has caused many people to postpone pension planning.

In March of this year, the start date was moved from late 2024 to early 2025 – a timeline that has been variously described as “ambitious” by law firm MHC, and “very optimistic” by accountants Mazars.

So what should you do?

If you are in work and have no pension, auto-enrolment is certainly good news. But don’t expect it to sort your income in retirement.  Auto-enrolment is a slow-burn.

For example, if you 57, on a salary of €75,000, under auto-enrolment you’ll have a pension pot of around €7,500 at age 60.  That could provide annual income of just €375.

The vast majority of workers in mid- or late-career need a better pension plan than auto-enrolment can provide.

Five concrete steps you can take today

Rather than waiting for a government solution, take action.  Here are five concrete steps you can take today to make a meaningful pension plan.

Firstly, start a monthly pension today.  Why? You’ll save tax at a higher rate than under auto-enrolment.  As a top-rate taxpayer, every €100 you put in to a private pension is worth €167.  Under auto-enrolment, it’s worth just €133, because the government topup is lower.

Don’t over-stretch on the amount you’re paying in. But do make a start.  You can increase it later – or indeed stop it if auto-enrolment does arrive, and does look more attractive (which is unlikely, for reasons we’ve set out in the past over here).

Second, press your employer for a contribution. Rather than doing the bare minimum when auto-enrolment arrives, some employers are opting to pay into staff pensions now, and avoiding being caught up in auto-enrolment as a result.

Third, dust down any pensions from old jobs.  Pensions have moved on in recent years: can you reinvest the money at lower cost or for higher returns?

Fourth, look into the scope for the state pension, both here and if you’ve worked abroad.  In particular, if you’ve worked in the UK, you can top-up social insurance contributions to enhance your eligibility for their state pension.

Lastly, consider the scope to make a lump sum pension contribution from your savings.  When you do so, you can claim back income tax you paid in 2023.  Based on your age and assumed salary, you could pay €26,250 into your pension.  After claiming back tax you paid at the 40% rate last year, the cost to you would be just €15,750.

There have been so many delays and changes to auto-enrolment that you would be unwise to place your financial future in this proposed solution. Instead, take concrete steps today.

 

This is adapted from a Moneycube column which appeared in the Sunday Times on 7 April 2024.