Government plans to introduce an auto enrolment pension scheme have implications for both employees and employers, says Nikki Johns.
Approximately 750,000 workers will be automatically enrolled in a new pension scheme that is to be set up next year, according to a recent Government announcement.
The motivation for the new scheme is to improve the financial security of future retirees. This will help address Ireland’s relatively low supplementary pension coverage which puts workers at risk of an unwanted reduction in living standards when they retire.
While participation in the scheme will be voluntary for employees, auto enrolment will operate on an ‘opt out’ basis.
Implications for Employees
All employees aged between 23 and 60 and earning over €20,000 will be automatically enrolled if they are not already members of an occupational scheme. However, if they choose to do so, employees will be able to opt-out or suspend their participation in the scheme after six months.
Employee contributions will start at 1.5% of salary, and increase every three years by 1.5% until they reach 6% in Year 10 (2034). There will be a choice of four different types of fund for employees to invest their retirement savings.
Employee contributions will be matched by their employer and topped up by the State which will contribute €1 for every €3 contributed by the employee.
Employees who change jobs will not have to change their pension scheme or join a new scheme and people with more than one employment will be able to consolidate their pension savings in one ‘pensions-pot’.
Implications for Employers
The scheme is being set up in 2023 with enrolments commencing in 2024. It will be administered by a Central Processing Authority (CPA) which means that employers will not have to procure an auto enrolment scheme for their business.
Employers whose workers will be enrolled in the new scheme need to start planning now for how they will integrate the scheme into their payroll. Contracts will need to be checked and updated where necessary and provision will need to be made for the cost of matching employee contributions. An employer’s matching contributions for an employee will be capped at a maximum of €80,000 of earnings.
Now is the time to start getting to grips with auto enrolment. If you require further information or assistance, please contact our payroll team.