Pension Auto-Enrolment is in the papers every other week this year, but many are still wondering what it is all about. Here’s a summary of what we know so far:
The Bill for the Automatic Enrolment Retirement Savings plan is currently going through the various stages of the Oireachtas and is planned to be enacted by Q1 2025. It will see 800,000 workers brought into a retirement savings scheme for the first time.
Who will it be for:
Under the new system, all employers will be obliged to Auto-enrol an employee if they are:
- Between the ages of 23-60
- Earning over €20,000 p/a (before tax)
- Not currently part of a pension plan (as evident via payroll)
Can an employee ‘opt out’?
Once enrolled, it is up to the employee to opt out if they do not wish to be part of it. They can only do so after 6 months, at which point the employee contributions can be refunded, but the employer & state contributions will not be.
Once in the scheme, the employee, the employer, and the state must all pay into it. The employee & employer contributions will start at 1.5% of gross salary each. The State will pay €1 for every €3 the employee pays in…. a top up of 25%. The employee and employer contributions will rise to 3% in 2-3 years, then 4.5% before reaching 6% in 9-10 years’ time.
How will it work in practice:
It is envisaged that the main interface for employers with AE will be through their existing payroll software. It is unclear at this stage what additional administrative & compliance burden will apply to employers, but functionality similar to the PRSI system has been mentioned.
What about existing arrangements:
If an existing scheme is evident on the payslip of an employee (i.e. pension payments are facilitated through payroll) , then the employees will be exempt from A-E. This will be the case whether the employer is contributing or not, although employer contributions to existing pensions will be reviewed ‘within 7 years’.
Also worth noting for existing schemes is that if you are enforcing an initial ‘eligibility’ period for new employees, whereby they must be in the company for X number of months before they are eligible to join the company scheme, you will be required to Auto-enrol them in the government scheme for that initial eligibility period. As such, company schemes may wish to revise such criteria, to avoid short periods of A-E before joining the company scheme.
Higher Tax Rate Payers:
According to the department, approx 200,000 employees that will fall into A-E are currently higher tax rate payers (40%). An employer scheme or Group PRSA would generally be preferable for these employees as the above schemes would grant them tax relief at 40%, vs the new A-E scheme which provides top ups of 25%. Therefore, it is strongly advices that employers seek advice and make steps to engage this cohort of employees to educate them as to the benefits of alternative arrangements.
Advice:
There is currently no provision for advice to employers or employees within the proposed A-E system. As such most employers would benefit from seeking advice from their current pension provider or a local advisor, to understand the new developments that A-E will bring. Likewise, a large majority of employees will no doubt be uncertain of the benefits of the new scheme and the investment decisions they will be required to make. So again, seeking independent pension advice and support for your employees will help to smooth the transition to pension Autoenrollment.
Read more advice articles from Gareth in Lynx Financial Services here.
