A New Era in Irish Pension Savings – Is Your Business Ready for Auto Enrolment?

Under the scheme, around 800,000 workers who are not already members of a pension will automatically be enrolled next year.

Currently, employers in Ireland are not required to offer an occupational pension scheme. Since 2003, employers must provide a Personal Retirement Savings Account (PRSA) for employees if no occupational pension is available, however, employers are not obligated to contribute to the PRSA.

Why is AE Being Introduced?

Currently, Ireland is the only country in the OECD without such a system and the aim of the auto-enrolment scheme is to boost the numbers of people with a pension and the level of their retirement savings. It is estimated that only 35% of people in the private sector have pension coverage. This means that the majority of workers will rely only on the State Pension when they retire.

Who Will be Auto-enrolled?

Of the estimated 800,000 workers who will be auto-enrolled under the new scheme, those earning over €20,000 per year across all their employments will be included. Workers aged between 23 and 60 will be auto-enrolled, while those younger or older can opt in if they wish. Employees already in a pension scheme for one of their employments will not be auto-enrolled for that job. Auto-enrolment will also apply to employees on probation, as well as those with casual, seasonal, and part-time contracts.

Contribution

Employers will match their employee’s contribution, and the State will also pay a top-up in place of tax relief. For every €3 put in by an employee, the employer will also contribute €3, and the State will contribute €1. This will apply up on an employee’s earning of up to a maximum of €80,000.

To help everyone adjust and get used to this extra cost, contributions will be phased in over a decade, starting at 1.5% for the employee and employer, and rising by 1.5% every three years until 6% is reached in year 10.
It is important to note that the contribution rates phasing in period will take place in the first decade of auto-enrolment, not in the first ten years of an employee’s career. All new employees joining after year ten will start at the 6% rate.

Overseeing the Scheme

A new public body, the National Automatic Enrolment Retirement Savings Authority (NAERSA), will be set up to administer the scheme and promises to leave minimal administrative work for employers.
The Authority will collect the contributions from the employee, employer and State, and then pool and allocate them to the investment management companies, who will invest the money and returns. This will then be allocated to the employee’s personal fund by the Authority and paid on their retirement. If the Authority decides that an employee meets the requirements for enrolment, it will notify the employer about the decision and the enrolment date. An employer who receives a notice must inform the employee about the decision and the enrolment date. If the employer fails to do this, they will be committing an offence.

Key Features of AE

Pot-Follows-Member

The pot-follows-member approach will allow employees to keep the same AE pot as they move from job to job through their career. Employees will not end up with lots of small pots, which would be difficult to manage and keep track of.

Right to Opt-In

If an individual who is not already a participant would like to opt in and meets the requirements, the Authority will set an enrolment date. An individual can opt in if they are 18 or older, below pensionable age, and employed in a non-exempt job.
If an individual who previously opted out would like to rejoin and meets the requirements, the Authority will set a re-enrolment date. If the Authority rejects an application, it will provide a written explanation and inform the applicant of their right to a review. If an application is approved, the Authority will notify the employer, who must then inform the employee. Employers who fail to do so will be committing an offence.

Right to Opt-Out

Everyone will have to remain enrolled for the first 6 months but may opt out if they so wish in months 7 and 8 and receive a refund of their own contributions. However, the employer and State contributions will remain in the participant’s pot. This is because once contributions are paid, they belong to the employee, helping them build up their savings.

In the first ten years, participants can also opt out in months 7 and 8 following a contribution rate change, receiving a refund of the difference between the old and new rate of their own contributions.

Although employees can opt out, they will be automatically re-enrolled after two years unless they no longer meet the eligibility criteria.

Right to Suspend

Employees will be able to start a suspension period no earlier than 6 months after they first join or re-join the scheme, or 6 months after the end of any previous suspension. The suspension period ends either on a date the participant notifies the Authority, or, if no date is provided, 2 years from the start of the suspension. Participants can suspend their contributions but will not receive a refund, unlike the right to opt-out. The Authority will provide details on their website about how to suspend contributions or end a suspension period, including the required notification process and necessary information

The Process

1. The Authority will use Revenue data to identify eligible employees.
2. Once the employee has been identified, they will be enrolled immediately, meaning that there are no waiting periods for AE.
3. The Authority will send a payroll notification through payroll software, just like Revenue sends payroll notifications for the collection of tax.
4. Employers will apply the payroll notification and calculate the contributions, which will then be sent to the National Authority. The Authority will collect the State top-up separately.
5. The contributions will then be sent to the investment management companies, who will invest the money to grow the employee’s pot.
6. The Authority will manage the pot, facilitating the pot-follows-member approach and giving employees access to information about it.

As the new era in Irish pension savings begins, it is essential for businesses to proactively prepare for Auto-enrolment. This landmark legislation will bring significant changes to how pensions are managed, and by staying informed and taking the necessary steps now, you can ensure your business is ready for the transition and that your employees are well-supported in their journey towards a more secure retirement. Taking these proactive steps will ensure your organisation is fully prepared for the upcoming changes:

1. Ensure sure you have identified all of the employees who will or could be affected by AE.
2. Ensure a full understanding of all potential cost implications.
3. Consider what approach to meeting AE obligations will suit your organisation best in the initial phase.
4. Consider the potential impacts on your existing pension plan (if relevant).
5. Start formulating your strategy for effective communication to employees of your decisions.

This article was written by Sharon Sweeney, HR Consultant at Action HR Services.

Contact any of our consultants if you are in need of expert HR Advice.

DISCLAIMER:
The information in this article is provided as part of the Action HR Services Blog. Specific queries should be directed to a member of the Action HR Services Team and it is recommended that professional advice is obtained before relying on information supplied anywhere within this article. This article is correct on August 16th 2024.