TWO PIECES OF news have emerged on pensions since Ireland returned to school at the start of the month. Both point to a diverging pensions future for Irish workers – and a need to take charge of your own pension situation.

First, it was announced that lifetime caps on pensions (also known as the standard fund threshold) will be moved from its current €2 million to €2.8 million by 2029.

Second, rumours continue to grow that auto-enrolment, the long-promised plan to automatically sign up workers to pay into pensions, will slip further into next year.

There are still many in the workforce without adequate pension coverage for a variety of different reasons. This week, Pensions Awareness Week, is as good a time as any to give time to your plan for a pension. For starters, try the National Pensions Test to measure your readiness for retirement. 

What’s going on?

On one hand, the government has announced stroke-of-the-pen changes to facilitate a small number of workers at a significant public cost. In contrast, the hard work of putting a fit-for-purpose scheme for 800,000 plus workers with no pensions never gets completed.

On the face of it, raising the pension cap is a good idea. Money in pensions gets taxed eventually, and we need people to get serious about building up their own income in retirement. Targeting a €2 million pension might seem ambitious for many, but saving €650 a month for 40 years would generate a sum of that size – so it’s not only the preserve of the super-rich.

What’s more, the cap hasn’t been adjusted since 2013 (and it stood at €5 million when originally introduced back in 2005).

The immediate prompt for raising the cap has come from a report on the topic commissioned last year. What’s notable is that while the cap has been increased, several other changes proposed in the report have so far fallen on deaf ears. That’s a pity, as we’d all benefit from them. They include:

• Removing age-related limits for pension contributions. Right now, as you get older these limits increase, but if you earn decent money in your 20s and 30s, you’re held back from doing the right thing to build retirement wealth.

• Removing the €115,000 annual limit on earnings that can be taken into account for tax relief. That might be irrelevant to most people with stable income, but it’s hard on people – such as the self-employed – who might want to use a bumper earnings year to secure their pension.

As the report says “it is difficult to see the need for annual limits on pension contributions where an overall standard fund threshold limit is in place”.

But these changes will have to wait. The immediate need to raise the threshold is that so many well-paid public sector workers risked breaching it. If that happens, there’s a risk of penalty tax on the entire value of the pension.

In particular, the government has struggled to find senior gardaí willing to apply to become the next Garda Commissioner, because their pension would become too valuable!

So don’t be fooled that the pension cap change is for the private sector rich: this one is focused on the unintended consequences of unreformed pension arrangements for high-paid public servants.

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Meantime, auto-enrolment languishes

While those with big pensions now have more clarity, in contrast, the government’s long-touted auto-enrolment scheme continues to crawl along. It’s all but certain that it won’t be introduced until after the general election. The agency which is supposed to manage it, the National Automatic Enrolment Retirement Savings Authority doesn’t even exist (and doesn’t exactly trip off the tongue).

The laws to enable it were finally passed over the summer. But it would be a brave government that would impose a 1.5% pay cut on workers and a 1.5% staff cost increase on businesses in the months before canvassing their vote. With pensions, the cost is up front, but the benefit comes later – that’s not a winning formula in politics.

The current government line is still that auto-enrolment will be introduced during 2025. But almost unbelievably for an initiative with such significant implications for financial planning for businesses and workers, no-one can say when.

What should you do?

The clear lesson for most of us – with the possible exception of senior public servants – is that you’d be unwise to wait for the government to sort your pension future for you.

For sure pensions laws and limits will evolve over the years to come. But Ireland’s pension regime is heavily geared towards those who are happy to chip away at building their pension funds over many years. Don’t wait for a major reform or a bumper earnings year – it may never come. There’s a real need to take charge of your money today. That starts with building your knowledge about pensions, understanding your current situation, and where it’s going.

Ralph Benson is co-founder and head of financial advice of online investments and pensions advisor Moneycube.ie and co-founder of PensionsAwarenessWeek.ie.