With a bit of luck a new enforced pension scheme for employees aged between 23 and 60 years of age that their employers have to set up AND contribute to and to which the government will also contribute called auto-enrolment may be in place by the end of this year. It has been bandied about for the last 20 + years and it should have been put in place then. It may now be too late. John Lowe of MoneyDoctors.ie has the details for the 750,000 employees affected who currently have no pension and who hope the State Pension – currently € 277.30 per week – will still be there by the time they retire.
The actual simple pension / PRSA is probably the best investment in Ireland today…
- For every € 100 invested into a pension, the government give you € 40 back (if you are on the higher rate of tax)
- It means you are up 40% even before any growth in the fund
- The stock market average annual growth from 1991 to 2020 was 10.72%
Age thresholds already apply to those with pensions, occupational or personal including the self employed…
Age Limits
Up to 30 years of age 15% of net relevant earnings
30 up to 40 years of age 20% of net relevant earnings
40 up to 50 years of age 25% of net relevant earnings
50 years plus 30% of net relevant earnings
55 years plus 35% of net relevant earnings
Over 60 years 40% of net relevant earnings
The government announced in 2022 pensions for all whereby the employer and the government would contribute to those 750,000 employees who do not have any pension. The employee will be allowed to stop payments after 6 months but will be re-enrolled again after two years. There is also a cap on salary eligible – € 80,000.. over this amount no contributions will be made by the employer or the government.
Due now to start at the end of 2024, this is the break down…
Years Employee Employer Government/State
1 to 3 1.5% 1.5% 0.5%
4 to 6 3% 3% 1%
7 to 9 4.5% 4.5% 1.5%
10 years + 6% 6% 2%
To give a simple example…
Age 28… salary € 30,000 (and assume for 40 years, the salary is never increased )
1st 3 years – € 3,150
2nd 3 years – € 6,300
3rd 3 years – € 9,450
10th year – €126,000 ( for 30 years …)
Total fund … € 144,900 of which you would be eligible to take 25% tax free (€36,225) with the balance going into an Approved Retirement Fund (€ 108,675 or €4,347 per annum – € 362.25 per month )
Bear in mind that same person COULD invest a further 13.5% into a Personal Retirement Savings Account (PRSA) Additional Voluntary Contributions (AVC) separate to the government sponsored employer scheme to maximise the tax allowances available from year 1. At age 31, that person could invest up to a further 17% of his/her net relevant earnings into the AVC.
Even for those employees who have their own existing personal pension, it makes sense to avail of the new scheme as both your employer and the government are contributing to YOUR pension. If you need further advice, or as an employer wish to start a process, email me directly. Carpe diem.