Auto-Enrolment for Pensions Savings Scheme
The government has announced details of new legislation for the auto-enrolment pensions savings scheme. It’s designed to encourage workers to save for their retirement and make it more straightforward for businesses to offer a workplace pension option.
Currently, only around 35% of employees in the private sector have a supplementary retirement saving scheme.
Proposed new legislation for the Automatic Enrolment Retirement Savings System for Ireland, recently introduced by the Minister for Social Protection, Heather Humphreys, was voted in to law by the Cabinet, on 17 April 2024.
It will apply to almost 800,000 workers between the age of 23 and 60 who are employed but not enrolled in an occupational pension scheme, and drawdown will be aligned with the State Pension. The landmark scheme is being targeted to this cohort to allow them to begin saving for their pension earlier and to ensure that people are not left on just the State pension when they retire.
The scheme will see employees contribute into the pension pot, with their contributions matched by their employer, as well as a further top-up from the State.
The Scheme is due to commence in January 2025.
Some of the main points are as follows:
The National Auto-Enrolment Retirement Savings Authority (NAERSA) will be the body responsible for the administration of Auto-Enrolment (AE). It will:
Decide which employees should be enrolled and inform employers.
Collect contributions from employers and the State and distribute them to Registered Providers for investment.
Operate an online portal where employees can log into their account, see their account balance, and make decisions such as opting out.
Provide printed statements to those who do not have digital access.
Facilitate the ‘pot-follows-member’ approach whereby employees will have only one account with NAERSA over their working life.
Auto – Enrolment (AE) for Employees
Employees aged between 23 and 60 years, who earn more than €20,000 a year across all employments, and who are not currently a member of a workplace pension scheme or PRSA, will be automatically enrolled in the AE scheme.
Employees outside the earnings and age brackets, who are not a member of a workplace pension scheme or PRSA, may opt into the scheme.
Eligible employees will be enrolled in the scheme for the first 6 months. There will be a 2-month window during month 7 and 8 where employees can opt out.
Employee contributions will start at 1.5% of the gross pay. They will increase to 3% in year 4, 4.5% in year 7, and 6% in year 10.
In month 7 and 8 following each rate increase, employees will also be able to opt out.
Employees who opt out will receive a refund of their employee contribution. The employer contribution and State contribution will remain in the pot.
Employees will be able to suspend their contributions at any time outside of the 6-month mandatory participation period.
Every €3 an employee contributes will be matched by an employer contribution, and the State will also top-up by a further €1. Employer and State contributions will be capped at an upper earnings limit of €80,000 per year.
Auto-Enrolment for Employers
Eligible employees, who are not provided with a workplace pension or PRSA in that employment, will be automatically enrolled.
Employers will not be responsible for deciding who should be enrolled.
Employers will need to ensure that their payroll software will be capable of taking an enrolment instruction, calculating, and returning contribution amounts to the Authority.
While contributions will be calculated based on the employee’s gross pay, they will be deducted from the employee’s net pay.
Employers will be required to match the employee’s pension contribution, subject to an upper earnings limit of €80,000.
Employer contributions will be deductible for income tax/corporation tax purposes.
Employers who fail to meet their obligations will be subject to penalties and possible prosecution.
If you would like to talk through how Auto Enrollment may affect your business feel free to get in touch and talk to one of our experts.