Publication of landmark legislation for the Automatic Enrolment Retirement Savings System

Automatic Enrolment Retirement Savings System
by HRHQ Editorial Team

The Minister for Social Protection, Heather Humphreys TD, recently announced the publication of the Automatic Enrolment Retirement Savings System Bill 2024 .

The Bill, which will shortly be brought to the Oireachtas, will pave the way for around 800,000 workers to be brought into a retirement savings scheme for the first time.

In announcing the publication of the Bill today, Minister Humphreys said

“this represents one of the biggest reforms of the pension system in the history of the State, and is an important milestone in supporting people in their retirement years.”

At present, around 35% of private sector workers in the State have no occupational or private pension meaning they will be solely reliant on the State Pension when they retire.

Under Automatic Enrolment, employees will have access to a workplace pension retirement scheme which is co-funded by their employer and the State.

Upon being enacted, employees aged between 23 and 60 years old, who earn over €20,000 per year, and who are not already paying into a pension scheme, will be automatically enrolled.

In a similar way to the old SSIA system, contributions made by the employee will be matched by the employer and topped up by the State.

In practice, for every €3 put in by the employee, the employer will also contribute €3, and the State will contribute €1.

That means for every €3 an employee puts in, €7 will be added to their retirement savings pot .

Contribution rates will be phased in gradually over a period of 10 years.

Starting in 2025, employees will contribute 1.5% of their gross earnings, which will be matched by their employer, and topped-up by the State.

These rates will gradually increase every three years until reaching a maximum contribution rate of 6% per employee, 6% per employer, plus 2% from the State from 2034 onwards.

This steady phasing-in allows time for employers to budget and plan and for employees to adjust to the new system.

The goal of Automatic Enrolment is to increase pension coverage and pension adequacy in Ireland.

Ireland is the only country in the OECD that does not yet operate this or a similar system as a means of promoting pension savings.

A key feature of such systems is they operate on an ‘opt-out’ rather than an ‘opt-in’ basis.

Participants will be allowed to opt-out or suspend their contributions after a mandatory six-month participation period. They will be brought back into the system again after two years unless they have an alternative pension arrangement.

In order to encourage workers to participate, people who choose to remain in the system will have their retirement savings matched on a one-for-one basis by the employer. The State will also provide a top-up of €1 for every €3 saved by the worker. This means that for every €3 saved by the employee, a further €4 will be invested by the employer and the State combined.

It is estimated that a worker on the national average wage contributing consistently for 40 years could build up a savings pot of nearly €750,000, including investment returns, over the course of their working life.

The Bill also provides for the establishment of a new State body, the National Automatic Enrolment Retirement Savings Authority, to administer the scheme and act as a buffer between participants and the financial investment companies who will be tasked with growing their savings. The Authority will act in the best interests of participants, collect contributions, arrange for the investment of contributions, manage participant accounts that will be accessible through an online portal, and facilitate the payment of savings at retirement.

Further information on Auto Enrolment