Auto-enrolment: €15k Annual Retirement

Benefits consultants Willis Towers Watson have concluded that the introduction of auto-enrolment could significantly increase workers’ retirement income. From next year, a young worker earning the average industrial wage and registering for the compulsory workplace pension could anticipate retiring with a 60% portion of their working income, says Brian Mulcair, head of corporate consulting at Willis Towers Watson.

However, if a worker’s employer offers an existing occupational pension scheme that the worker has not yet joined, they would benefit more by choosing it—with an expected pension yielding 68% of their income. By using “current day” figures, the team was able to compare an estimated pension to current income. They used Central Statistics Office data showing that average earnings in the second quarter of this year were €50,084, rounded down to €50,000 for the analysis, and they also factored in the current State pension—€14,420.

At present, any workers between 23 and 60 years old earning more than €20,000 without an occupational pension could anticipate retiring on the State pension, which is roughly 29% of average income. The study takes into account contributions of 1.5% of income at the start of auto-enrolment, increasing gradually to 6% by the tenth year.

Based on these estimations, a 23-year-old earning the national average income could anticipate a yearly retirement income of €29,620 from the age of 66—combined from auto-enrolment income of €15,200 a year and the State pension—equivalent to 59% of national average earnings.

Individuals who are older during the implementation of automatic enrolment will experience fewer benefits. For instance, an annual amount of €15,200 decreases to €9,200 for a 36 year-old at the time of auto-enrolment initiation, and to €5,200 for those aged 46, thereby reducing the estimated retirement income to a moderate 39 percent.

Elderly employees will be at a disadvantage since their auto-enrolment pension fund has a shorter time to accumulate and they might not reach the 6 percent contribution rate upon retirement. For a 56-year old worker initiating the process, the projected yearly earnings would be a meagre €1,800. Coupled with the state pension, their retirement wage would constitute just 32 percent of the national average income.

In the face of Dublin’s potential halt in office construction, these same 56-year olds could secure an extra €1,100 annually by opting into an existing company pension scheme, if available, according to Willis Towers Watson. This presumes they will make the same contributions as in the auto-enrolment system while the employer contributes the state average — 7 percent.

Those who are single or widowed would see more tax relief under an occupational scheme at the national average income.

Though the auto-enrolment scheme was set to start next year, this target now seems overly ambitious. Employers should commence preparations regardless, as Mr Mulcair advises, anticipating that the scheme would become effective at some point next year, due to the extensive prepping businesses would need.

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