Auto-enrolment Pensions

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.

This article will offer an overview to small and medium-sized employers, and HR and payroll teams, on what auto-enrolment will mean for them and their employees, how auto-enrolment will work, when it will beginand how it will be phased in.

What is auto-enrolment?

Auto-enrolment (short for automatic enrolment) is a pension investment scheme for employees, which involve their employer matching their contributions of a set percentage of their gross income with a top-up from State funds.
An estimated 800,000 employees (not including the self-employed) earning more than €20,000 per annum and aged between 23 and 60, and who are not already enrolled in an occupational pension scheme, will be automatically enrolled in the new scheme. The accumulated funds plus investment returns will be paid to participants upon their retirement in addition to the State pension, and drawdown will be linked to the State pension age, which is currently 66.

How auto-enrolment will work

All employees–current and new–who fit the eligibility criteria and who are not already enrolled in a workplace pension scheme will be automatically enrolled in the new scheme.

Eligibility

Employees aged between 23 and 60 earning more than €20,000 per annum will be eligible to participate in the new scheme. Those earning below the income threshold or aged outside of the parameters will be able to opt in to the system if they wish.Members of an existing occupational pension scheme won’t be automatically enrolled for that employment.
Employees who are on probation, or are casual, or working on a part-time
basis will be assessed by a newly created National Automatic Enrolment
Retirement Savings Authority to determine eligibility.

Employer/employee contributions

Initial contributions will be 1.5% of gross income. This amount will be increased on a phased basis over 10 years with 1.5% added every three years until a total of 6% is reached. As an employer, you’ll match your employees’ contributions and the
pension will also be topped up by the State at 33%, with employer and State contributions capped at €80,000 of earnings.
Here’s how contributions will be raised over the 10 years:

Employee:
Years 1 to 3: 1.5%
Years 4 to 6: 3%
Years 7 to 9: 4.5%

Years 10+: 6%

Employer:
Years 1 to 3: 1.5%
Years 4 to 6: 3%
Years 7 to 9: 4.5%
Years 10+: 6%

State:
Years 1 to 3: 0.5%
Years 4 to 6: 1%
Years 7 to 9: 1.5%
Years 10+: 2%

For each €1 saved by an employee, €2.33 would be credited to theirpension savings account comprising their €1 personal contribution, plus €1 from their employer, plus €0.33 from the State. So, for every €3 an employee contributes, they will receive a further €4 into their pension pot. Therefore, the total invested will be €7,

The added incentives are aimed at encouraging workers to remain in the scheme by reducing their costs of saving for retirement.

Detailed examples of projected earnings for different life and work situations can be found in the Department of Social Protection document, The Design Principles for Ireland’s Auto-enrolment Pensions & Retirement
Savings System.

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