A new auto-enrolment pensions savings scheme is being introduced by the Government in 2024. Many workers don’t have pension plans, so when they retire, they will be dependent on the state pension. The proposed auto-enrolment program’s goal is to guarantee that every employee will have access to a workplace pension as an addition to the basic state pension.
What is the Auto-Enrolment Scheme?
The term “auto-enrolment” refers to a pension investment program for workers in which their employer tops up their contributions from State funds with a set percentage of their gross income. Currently, Ireland is the only OECD country that doesn’t operate an Auto-Enrolment system that entices employees to invest in a pension.
This proposed system is designed to simplify decision-making for employees and to make workplace pensions more attractive for employers. Employees will have access to a workplace pension savings plan that is co-funded by their employer and the State under the proposed Auto-enrolment scheme.
The objective of the proposed auto-enrolment scheme is to ensure that every worker will have access to a workplace pension to supplement the basic state pension.
The goal is to raise the level of active participation in supplementary pension provision among the workforce in the private sector from its current level of about 35%, as determined by the Central Statistics Office, to the long-stated government policy objective of 70% and beyond.
When does this scheme start?
The hope is that this will be in place in Q1 2024.
Will I have to enrol?
This new system will automatically enrol people who do not currently have a pension plan, make more than €20,000 annually, and are between the ages of 23 and 60. As a result, they won’t have to rely solely on the state pension when they retire and will have extra cash.
People with existing pension schemes won’t be automatically enrolled for that employment.
What are the contribution levels ?
The proposed design, which is still subject to specific draft legislation to be passed by the Dail, envisages matching contributions from employers and employees, with a 33% uplift of the employee contribution from the State in lieu of income tax relief. The initial contribution proposed is 1.5% by both employer and employer and a 0.5% state contribution, totalling 3.5% of an employee’s salary, in year one.
The phase-in of the scheme will mean that contribution requirements will increase every three years by 1.5% for employer and employee, reaching a total contribution of 14% in year 10, made up of 6% each for employers and employees and 2% from the state. These contributions will apply to earnings up to €80,000.
Can employees choose not to opt in?
While the proposed scheme is voluntary, the approach is opt-out rather than opt-in. Employees will be able to opt out after month six following commencement and after six months of each tri-annual increase within a two-month window, with employees to receive a refund of their own contributions.
Can employees select the plan they want to join?
Yes, employees will have a variety of retirement savings fund options from Registered Providers to choose from.
If someone changes jobs, can they take their account with them?
Yes, when an employee changes jobs, they would be able to take their account, or “retirement pot,” with them. The system will function according to the “pot-follows-member” principle.
Where will my money be saved?
The legislation states that your fund will be invested in a mixture of equites, property, bonds and commodities with 4 different fund options. Details are not yet available on these.
Central Processing Authority and contributions
The Central Processing Authority (CPA) will be established to manage the system. However you must note that employers have to correctly calculate, withhold and pay the employee’s contribution to the CPA. This adds a new layer of administration on small business owners on top f the cost.
For more information on what is the best pension plan for you get in touch with one of our experts. With our expertise we can thoroughly examine your current financial situation and where necessary, offer suggestions for improvement.