Auto-enrolment – the practice of automatically signing up workers to pay into a pension – is coming to Ireland – likely next year. There’s no doubt it’s a positive development for the people of Ireland, and the affordability of pensions in the decades to come.

Legislation to make it happen is inching through the Oireachtas, and no doubt there will be some tweaks in the final details. At a minimum, it will add complication and cost for employers.  Moneycube is here to help with our FAQ!

From the benefits of auto-enrolment, to practicalities like opt-outs, costs and timing, if you employ people, read Moneycube’s rundown of everything you ever wanted to know about auto-enrolment in Ireland… but were afraid to ask.

Got a question to add?  Email us and we’ll add it to the list!  Got an enquiry? Get in touch here.

What is auto-enrolment?

Auto-enrolment is the practice of automatically signing up workers to pay into a pension. The idea is that by making opting out of a pension the default choice, rather than opting in, people will “do the right thing” and pay into pensions. At the same time employers will be required to contribute an element of salary, and the government offering tax relief.

I am an employer with an existing occupational pension scheme. Do I need to engage with auto-enrolment?

You need to decide how you’ll deal with it.  Different approaches will work for different organisations.  Some will choose to run auto-enrolment alongside existing pensions. For others, it makes sense to avoid running multiple pension arrangements, by making adjustments to the existing pension scheme.  Either way there are likely to be budgetary and HR considerations. Contact us if you’d like to discuss your options.

How is auto-enrolment being introduced?

The government’s plan is for auto-enrolment to be phased in over a decade. In the early years, employers and employees will each be required to contribute 1.5% of salary, rising to 6% ten years after its introduction. There it is planned to stay, but there are already those who suggest that is insufficient and that further rises are needed.

Why is auto-enrolment being introduced?

The government is introducing auto-enrolment to increase pension provision for those who currently have none, and to reduce dependence on the State pension, which is likely to become unsustainable in its current form as the number of retirees relative to the number of taxpaying workers rises.

Who is being auto-enrolled?

Any employee between the ages of 23 and 60, for whom the employer is not paying into a pension, or who doesn’t pay into a pension themselves via payroll will be auto-enrolled once their earnings are over €20,000 per year as measured by a recent payroll reference period.

When will auto-enrolment begin?

It’s anyone’s guess.  Auto-enrolment has been promised to Irish workers since at least 2006.  In the current guise it has been promised for 2023, 2024 and now 2025.  With the legislation currently going through the Oireachtas, it’s prudent for employers to budget for its introduction from next year, although the planned January start date looks increasingly challenging – especially as Dail elections loom.

 How much will employers require to pay in?

In the first three years, employers will be required to contribute 1.5% of salary.  In year 4 that rises to 3% of salary.  From year 7 it’s 4.5%. From year 10 it’s planned to be 6%. This approach is designed to ease the financial impact of the changes, but is nevertheless a significant new cost to many employers, especially in an inflationary environment.

How much will employees pay in?

Employees pay the same as employers, namely: in the first three years, employees will be required to contribute 1.5% of salary.  In year 4 that rises to 3% of salary.  From year 7 it’s 4.5%. From year 10 it’s planned to be 6%.

How much will the State pay in?

The State will offer a top-up of €1 for every €3 paid into the pension by the employee. This is equivalent to tax relief at 25%, which is significantly worse than the 40% relief any top-rate taxpayer currently receives. But it’s better than the 20% relief on pension contributions standard rate taxpayers receive.

Is starting a company pension scheme a better option for my business?

Starting a company pension scheme could be a better alternative for your organisation than having some or all of your team auto-enrolled.  There are benefits around control, cost, advice, ease of administration, and staff wellbeing. The first step is to read more on starting a corporate pension.

I’m self-employed. Will I be auto-enrolled?

No.  Self-employed people are outside the auto-enrolment system and all existing pension options are open to you unchanged.  Read more on starting a pension if you’re self-employed.

How will auto-enrolment be administered?

The government plans that an as-yet unformed “central body” (aka Central Processing Agency) will administer the pensions system.  In practice this looks to be an offshoot of the Department of Social Protection.  Its workload looks reasonably heavy as it will have to deal with the queries of thousands of employers, hundreds of thousands of employees, millions of financial transactions, four fund managers from the get-go.

Will employers have to make an additional payroll return each month?

Yes.  Although the government says auto-enrolment has been designed to minimise the administrative burden on employers, it seems an additional return to the planned Central Processing Agency will be required over and above monthly payroll returns to Revenue.

How will auto-enrolled retirement accounts be invested?

Auto-enrolled pensions will be invested into funds with the aim of achieving capital growth over time.  There will be four investment choices: a default fund which adjusts risk and reward based on the member’s age, a low risk-reward fund, a mid risk-reward fund, and a high risk-reward fund.

Will members end up with multiple pensions?

No – the idea is that each member of the auto-enrolment system will have a single retirement account that they build up through each job they hold. For example, a person with two jobs will pay into a single account from the two jobs.

What is the “pot-follows-member” principle?

The idea is that retirement savings plans will follow the employee from job to job, most likely using PPS numbers as a reference number. We’re told this will be done by the Central Processing Agency, the as-yet non-existent body running system, so employers and employees won’t have to administer the change.

How will auto-enrolment affect the State pension?

To begin with auto-enrolment won’t affect the State pension. But it seems likely that over time privately funded pensions (whether auto-enrolment or otherwise) will become the primary source of income in retirement. That’s because the State pension in its current form will become increasingly unsustainable as Ireland’s population ages and the proportion of people in retirement rises.

 

Interested to discuss how auto-enrolment affects your organisation?  Get in touch