The Auto enrolment pensions bill was passed by the government and a proposed start date in January 2025.
Approximately 800,000 employees who are aged between 23 and 60, earning over €20,000 and who are not already in an occupational pension scheme or qualifying PRSA with an employer making contributions, will automatically be opted in.
Those eligible employees will be automatically opted-in and must remain in the scheme for the first 6 months after which they can opt out or suspend participation.
Contributions will be paid by employee’s and matched by their employers, as a percentage of the employee’s total income. The State will top up the rest. The rates of contribution will be phased in gradually over a decade as follows:
| Employee | Employer | State | |
| Year 1 – 3 | 1.50% | 1.50% | 0.50% |
| Year 4 – 6 | 3% | 3% | 1% |
| Year 7 – 9 | 4.50% | 4.50% | 1.50% |
| Year 10 + | 6% | 6% | 2% |
Under the Auto Enrolment scheme the government will pay a ‘top-up’ equal to 1/3rd of the contribution being paid by the employee. This equates to tax relief of just 25%. Under a separate employer scheme, tax relief would be given at an individuals marginal tax rate so for employees paying tax at 40% a separate scheme would be considerably more attractive.
The Auto Enrolment investment fund managers have yet to be determined and the funds being offered will be quite limited with a default strategy plus three other funds, low, medium and high risk funds. There will be no advice offered.
Retirement age is set at State Retirement age, currently age 66. Early retirement, other than cases of ill health, is not allowed under the scheme nor can an employee retire later than age 66. This rigid approach to when an individual can access their benefits is out of line with: employer sponsored schemes where the revenue permit early retirement from age 50 and the state pension which can now be deferred until age 70. This retirement age may be especially prohibitive to company directors who may want to leave their pension fund there beyond age 66.
The Auto Enrolment contribution rates are fixed and there is currently no facility for an individual to pay in any additional contributions to provide themselves with a higher pension fund.
If employers take no action the auto enrolment eligible employees will be picked up and put into a state run pension by the newly established government body. While pension auto enrolment is a significant development in Ireland’s retirement landscape we would encourage employers and employees to consider their options now.
For those employers with an existing pension scheme they need to ensure that all eligible employees are included. To meet the Auto Enrolment conditions, membership of the pension scheme will need to change and become compulsory. Employers should want to avoid the inconvenience of administrating two different sets of pension deductions from salaries, one set from gross pay and one set from net pay.
For those employers with no existing pension scheme, they would need to consider which option would suit their employees best. By establishing their own scheme it would enable them to design a scheme to meet their own circumstances, giving them a much greater degree of control and flexibility, as well as the obvious advantages for the employees.
We recognise that there is unlikely to be one single approach that is appropriate for all employers and employees, but we believe that embracing the concept of pension funding will strengthen the overall financial well-being of our aging society in the long run.
If you would like to contact us to discuss the most appropriate option for you as a business owner and your employees we would be happy to discuss.