by Stephen Gillick, Partner in the Employment Law and Benefits team at Mason, Hayes & Curran
What is the Auto-Enrolment Scheme?
Auto-enrolment is a new retirement savings system for employees that the government are planning to introduce in 2024. Currently, many employees do not have a pension scheme, with the result that they will be relying solely on the state pension when they retire. This causes a reduction in living standards for many.
How the System Will Operate
People who do not have a pension scheme, earn more than €20,000 per year and are aged between 23 and 60 will be automatically enrolled into the new system.
People outside of this range will not be automatically enrolled but will be able to opt in.
Employees already contributing to an occupational pension scheme, or an equivalent scheme, will not be automatically enrolled.
Contribution rates and increases
For every €3 that an employee contributes, the employer must also contribute €3, while the State will contribute €1.
The contribution rates increase over a 10-year period, starting at 1.5% and capping at 6% of the employee’s net income.
Oversight of the Scheme
An independent body, the Central Processing Authority, will be established to oversee the scheme.
Benefits to the Employer
Greater simplicity and reduced administrative costs
Unlike other occupational pension schemes, employers will not need to establish the scheme, procure a pensions provider or pensions administrator, assess eligibility or select a savings option for their employees. Instead, the Central Processing Authority will be responsible for these administrative responsibilities.
While employers will be responsible for recording, via payroll, the data related to all employees, the new scheme should nonetheless serve to reduce complexity and administrative costs for businesses, particularly SMEs.
A more level playing field
The introduction of a single auto-enrolment scheme should serve to create a more level playing field between employers seeking to hire and retain talented staff. As with all Revenue approved occupational pension schemes, employer contributions will also be deductible for corporation tax purposes.
From a market and consumer demand perspective, ESRI research indicates that, over the longer term, the auto-enrolment system will be beneficial for the economy as retirees will have more disposable income than they would otherwise have had, with just the State Pension to support them. This will help to sustain consumer demand and business revenues. This may prove to be the most significant benefit of the new scheme, given Ireland’s ageing population.
Proactivity Now Required from Employers
While implementation of the auto-enrolment system will be phased, employers should now be engaging in active preparations.
In particular, employers should consult with their payroll providers and assess whether current systems are suitable in terms of meeting the reporting requirements of the new scheme. Ultimately, the avenue which offers the most frictionless implementation of the new scheme into the existing system should be identified as early as possible.
Employers will also have to be prepared to advise employees on how the scheme will operate, including details on eligibility, rates and increases.
Finally, employers should also seek legal advice to ensure existing employee contracts will not be problematic in terms of the implementation of the new system.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
About the author
Stephen is a Partner and Head of Pensions in Mason Hayes & Curran’s Employment Law and Benefits team.,specialising in Pensions Law.
He has extensive experience in advising trustees, sponsoring employers and pension providers on a range of issues, including pension scheme establishment; pension scheme funding and exercises to reduce scheme liabilities.
Stephen is experienced in drafting and updating pension scheme documentation and advising on pension scheme mergers and reorganisations. He regularly advises on the pension aspects of corporate acquisitions and disposals.
Stephen is a member of the Benefits Committee of the Irish Association of Pensions Funds and is a member of the Law Society’s Pension Committee.