Approximately 800,000 employees in the State are not currently paying into a pension. Employees, to their detriment, can at times be slow to start a pension or join a group pension scheme. Auto-Enrolment (AE) aims to address this by adding to the retirement income of employees who don’t currently have a private pension.
AE is a new occupational pension scheme which will introduce mandatory retirement savings requirements for the first time in Ireland. The Government’s aim is to substantially increase the number of employees who are currently saving for their retirement.
Hailing it as “…a truly transformative policy that I am proud to deliver for Ireland”, Minister for Social Protection Heather Humphreys welcomed the passing of the relevant legislation through both Houses of the Oireachtas, and added that she “…look[s] forward to it being enacted shortly”. The legislation will now be sent to President Higgins to be signed into law, with a proposed commencement during the 1st quarter of 2025.
Source: https://www.rte.ie/news/business/2024/0704/1458075-tcs-wins-pension-auto-enrolment-contract-as-bill-passes/
How will it work?
A new State-operated central savings system will be established, into which employees who are not already members of a pension will be automatically enrolled.
Who will make contributions?
Minimum employee and employer contributions will start in year 1 of AE at 1.50% of gross income, rising on a sliding scale over the first ten years to 6.00%. See below.
Source: https://www.citizensinformation.ie/en/social-welfare/irish-social-welfare-system/auto-enrolment/
Which employees will be affected by AE?
Any employee, current and new, will be automatically enrolled in the new system, if they are:
- Aged between 23 and 60
- Earning Over €20,000 per annum
- Not currently making pension contributions
What are the key initial questions that employers will need to consider?
AE will affect all employers in some way, and some quite considerably. As part of the planning and budgeting process employers will need to consider these important questions at the outset:
- Which employees will be affected, both at the outset and in the future?
- What are the immediate and longer-term business impacts and how much could AE cost?
- What options are available to meet AE requirements and what key decisions will need to be made?
- How could existing benefit arrangements be affected?
- How will strategic decisions be communicated to workforces?
What are the key decisions to make before AE commences?
Employers are going to need to make a couple of key priority decisions before this process begins:
Firstly, what approach will be used to meet obligations in relation to employees who are not currently contributing to a pension plan.
The answer to this will involve assessing whether employees are going to be better off in the central AE system or in an existing or new group pension plan.
Secondly, if employers do choose a group pension plan as their AE vehicle, they will need to look at the options they have regarding contribution structures.
In time, employers should also consider whether there are any existing active members of the pension plan who may at some point be better off under the AE structure and, if so, what solutions might be appropriate for that group.
Employers will also need to think about what, if any, changes might need to be made to any existing pension plan to accommodate the approach they decide to take.
What should employers be doing now?
The introduction of Auto Enrolment is a significant event for employers.
It’s hugely important that employers know where they stand in relation to AE, and plan ahead in good time. As per the Government’s recommendations, the planning and budgeting process for the commencement of AE should start now, looking at the issues and key questions discussed above.
At Hastings Financial, we will be delighted to help and advise you through the AE journey. Contact us on 098 51605 and we will be happy to arrange a chat around your individual business requirements.
