Personal Finance

Ireland's pension reforms explained

Robyn Hamilton

Robyn Hamilton

Content Marketing Specialist

​In late February, the Government made a number of reforms to pensions, chief among which is the introduction of “auto-enrolment” from 2022. In this article, we take a look at what these reforms are and what they will mean for you and your pension scheme.

For a quick overview of the new reforms, check out the video above in which we chat with Colm Power, of HMP Insurance & Pension Advisors about what you can expect in the coming years. For more detailed info, read on.

If you’ve heard terms like “total contributions approach” and “auto-enrolment” bandied about in relation to pensions over the last few weeks and felt your eyes glaze over - don’t worry we’re here to set the record straight and lay everything out in plain language.

What does a “Total Contributions Approach” mean?

From 2020, the Government will change the pensions system to a Total Contributions Approach (TCA), which means that pension entitlements will be based on how much a person pays PRSI over their lifetime.

As it stands, pensions are currently based on ‘yearly averages’ of contributions made by a person during their time working.

How will a total contributions approach affect my pension?

The reform seeks to address the inequity in the distinction between a contributory and a non-contributory state pension. The current system is inequitable when it comes to people such as homemakers, or people who have lived and worked for a time outside of Ireland or the European Union.

The reform will make the pensions scheme a lot more equitable in that eligibility will be based on the total number of social welfare contributions the individual may have had over their working life rather than a notional average.

According to a statement from Taoiseach Leo Varadkar, Minister for Finance and Public Expenditure and Reform Paschal Donohoe and Minister for Employment Affairs and Social Protection Regina Doherty, the Total Contributory Approach (TCA) will include "fair regard for periods of child rearing, full time caring and periods in receipt of social welfare payments".

"With effect from March 2018 (with arrears paid at the start of 2019) people who reached pension age from September 2012 will be offered the option of transferring to a TCA model," the statement continued. The TCA model will then be proposed for all new pensioners from 2020.

If you feel that you would be at a disadvantage under the new system, don’t worry, those with few social insurance contributions will be able to opt for the current non-contributory pension.

Pension auto-enrolment from 2022

In addition to the new TCA system, from 2022, all workers will be automatically enrolled onto an automatic enrolment retirement savings system.

The Department of Social Protection stated that: “It is intended that employee savings in this scheme will be supported by employer and State contributions.Under the system, workers will have the freedom to opt-out should they so choose, however experience in other countries indicates that once automatically enrolled workers tend to remain in the system.”

The move is intended to address Ireland’s significant retirement savings gap.

What about the state pension age?

The new reforms also announced that there will be no further increase in the state pension age before 2035. An increase in the age to 67 in 2021 and to 68 in 2028 have already been legislated for.

Questions, comments?

If you’ve got any questions or comments about the new reforms, leave them in the comments below or tweet us @bonkers_ie. We’d love to hear what you’ve got to say!

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