Expert warns that auto-enrolment will not solve Kildare's pension problems

As Ireland prepares to implement its new system of pension auto-enrolment in 2025, financial expert Dan Malone, from the National Pension Helpline, warns that this initiative alone will not necessarily address the multitude of pension problems currently facing the Nation. 

“There are a number of complex problems to be solved” states Malone, referring to both Ireland’s ‘fragile’ State pension system and the inadequacy of private pension pots held by individuals as but two of the core issues at play.

Ireland, like many European countries, is faced with an ageing population. The number of individuals aged 65 and over is set to double by 2050, without a corresponding increase in the number of workers. This, says Malone, will put considerable strain on Ireland’s social insurance fund, which is responsible for paying out State pension payments to retirees. Furthermore, analysis of private pensions in Ireland suggests that some 90% of workers are not on track for a financially comfortable retirement. “So what you have is a system that is weak on both the State pension side and the private pension side”.

Auto-enrolment, which essentially turns pensions into an ‘opt-out’ rather than ‘opt-in’ decision, will only solve the problem of ‘pension coverage’, says Malone. “The Government will be able to say that they increased the number of people with private pensions from 68% to close to 100% but, in reality, auto-enrolment will do very little, at least at the beginning, in the way of ensuring that people have sufficiently sized pensions to support a comfortable lifestyle in retirement.” Malone suggests that simply having a private pension is one thing, but having enough money in that private pension is another thing altogether.

As covered in detail by the National Pension Helpline, Ireland’s scheme of pension auto-enrolment seeks to improve retirement savings for workers aged 23 to 60 who are currently outside the private pension system. By automatically enrolling eligible workers into a pension, the Government hopes to increase the number of individuals actively saving for retirement. The scheme will mandate pension contributions from employees, employers, and the Irish state. An employee earning €20,000 per annum would likely see a gross pension contribution from all sources equal to ~€700 in year one of the scheme. The mandated percentage contributions are set to gradually increase over a ten year period. 

But this, says Malone, is too little too late. “An individual under the age of 30 can currently contribute 10 times more money to their private pension annually, through the likes of a PRSA, than they’ll be able to contribute using auto-enrolment for the first three years…and for those over the age of 60, it’s 26 times more money!”. For someone looking to be proactive and optimal with their retirement savings, banking on auto-enrolment might not be the best bet. According to Malone, there are 10 things that people can consider doing when it comes to being proactive with their private pension:

1. Start early

2. Scale the size of pension contributions over time

3. Know where pension contributions are being invested

4. Avoid excessive fees and charges on your pension

5. Diversify pension investments

6. Take advantage of employer matching

7. Understand the limitations of the State pension

8. Educate on the tax benefits of private pensions

9. Know the options for pension drawdown in retirement

10. Have conversations about pensions with friends and family!

Malone clarifies that the introduction of auto-enrolment in Ireland is definitely net-positive for Irish society. “It’s just important that people understand the limitations of the scheme and what it can and can’t do for you”. Indeed, it has become harder than ever to put money away for retirement as many people prioritise saving for a house of their own, oftentimes whilst battling increasingly unaffordable rental costs and the general cost of living in Ireland. As such, pensions are commonly being viewed as a distant concern rather than an immediate priority. Despite this, “everything we know about effective pension planning supports starting early and investing often”, says Malone, “but it’s totally understandable why it [pension investing] falls low on the pecking order”. 

This is especially true in a world where pensions aren’t commonly seen in wider society as ‘sexy or cool investments’ especially when compared at face value to, say, investing in stocks or cryptocurrencies. But according to Malone, pensions should, for most people, be the number one investment priority and pension contributions should be viewed as automatic and almost ‘mandatory’ deductions from one’s gross salary each month.

As Ireland moves forward with auto-enrolment, it’s crucial for individuals to recognise the limitations of the scheme and to take proactive steps towards securing their financial futures. With the Irish State pension equalling just €277.30 per week, this alone is far from sufficient to sustain the lifestyle that the average worker has enjoyed up until retirement. As such, engagement with a private pension is fundamentally important. For many, getting comprehensive and trusted advice from a qualified financial advisor will be the first step towards a comfortable and financially secure retirement.

For more information, please visit https://nationalpensionhelpline.ie/