The Auto-enrolment scheme aims to ensure that every employee will have access to a workplace pension to supplement the state pension.
The plan is to increase active participation of the private sector workforce in supplementary pension provision from the current level of approximately 35%, (as measured by the Central Statistics Office), to the Government policy objective of 70% or more.
The scheme is scheduled to go live from the first quarter of 2025 and will mean that all employees not currently contributing to an existing employer pension scheme who are aged between 23 and 60 and earning €20,000 or more, will be automatically enrolled in the new scheme.
The proposal (which is still to be passed by the Dail) envisages matching contributions from employers and employees, with a 33% uplift of the employee contribution from the State in lieu of income tax relief. The proposed initial contribution is 1.5% by both employee and employer and a 0.5% state contribution. These will total 3.5% of an employee’s salary in year 1.
Contribution requirements will increase every three years by 1.5% for the employer and employee, reaching a total contribution of 14% in year 10, made up of 6% each for employers and employees and 2% coming from the state. These contributions apply to earnings of up to €80,000.
Whilst the scheme is proposed to be voluntary, the approach will be opt-out rather than opt-in. Employees will be able to opt out after month six following commencement and after six months of each tri-annual increase within a two-month window. With the opt out employees would receive a refund of their own contributions.
Outside these timeframes the option exists to suspend contributions but without a refund. In each case the employer and state contributions also cease. Employees will automatically be enrolled again two years after cessation with the option to suspend again.
Who is eligible for Auto Enrolment?
There is an estimated 800,000 employees who meet the criteria for auto enrolment. They must be aged between 23 and 60 years old with a gross pay across all employments of greater than €20,000 per annum. Employees on probation, casual or part-time contracts are eligible for the scheme, however self-employed, non-earning, existing members of OPS, PRSA, Trust RAC are not eligible. If employees are outside of the age and income thresholds, they can subscribe for voluntary opt in
How are benefits paid in Auto Enrolment?
Draw down in auto enrolment is aligned to the state pension age and prevailing pension and tax regulations will apply. Members of auto enrolment can avail of open market pension products and members can take the benefits as a lump sum. However as of now, the taxation of benefits is not clear. As the system matures, consideration will be given to develop viable drawdown options.
What are the benefits of auto enrolment to employers?
For employers, they will not be required to administer the scheme and there will be no cost to the company for set up. The contribution rates are phased in and tax deductible, so there is time to adjust to the contributions. Auto enrolment will ensure that your employees are looked after.
What are the key considerations for employers in advance of auto enrolment?
• Current pension schemes in the workplace
• Budgeting
• Software updates will issue via payroll company
• Communication with employees
What is the anticipated timeframe for Auto Enrolment?
• 2024 Q2: Enactment of legislation
• 2024 Q1/Q2: Contract admin and investment services
• 2024 Q2/Q3: Establishment of NAERSA
• 2025 Q1: Go live and first contributions deducted
What does auto enrolment mean for Employees?
• It is possible to ‘opt in’ if you are outside the thresholds.
• Pension pot follows the person
• Employees will have access to online portal
• Financial advice at retirement
If you have any queries feel free to contract us on 086 229 3032
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