What is auto-enrolment?
Auto-enrolment (short for automatic enrolment) is a pension investment scheme for employees, which involves their employer matching their contributions of a set percentage of their gross income with a top-up from State funds. An estimated 750,000 employees earning more than €20,000 per annum and aged between 23 and 60, and who are not already enrolled in an occupational pension scheme, will be automatically enrolled in the new scheme. The accumulated funds plus investment returns will be paid to participants upon their retirement in addition to the State pension, and drawdown will be linked to the State pension age, which is currently 66.
When will the auto-enrolment scheme begin?
The proposal announced in 2022 had auto-enrolment scheduled to go live from the first quarter of 2024. However, we are still awaiting the publication of the Automatic Enrolment Bill. The commencement date is currently now flagged as the second half of 2024, according to the Department for Social Protections website.
Contributions will be gradually phased in over 10 years,with employee and employer payments beginning at a modest level of 1.5% andincreasing every three years by 1.5% until they reach 6%.
How will the auto-enrolment scheme work?
All employees – current and new – who fit the eligibility criteria and who are not already enrolled in a workplace pension scheme will be automatically enrolled in the new scheme. Employees aged between 23 and 60 earning more €20,000 per annum will be eligible to participate in the new scheme.
Those earning below the income threshold or aged outside of the parameters will be able to opt in to the system if they wish.
Members of an existing occupational pension scheme won’t be automatically enrolled for that employment. Employees who are on probation, or are casual or working on a part-time basis will be assessed by a new Central Processing Authority (CPA) to determine eligibility.
Is there a set amount for contributions?
Initial contributions will be 1.5% of gross income. This amount will be increased on a phased basis over 10 years with 1.5% added every three years until a total of 6% is reached.
As an employer, you’ll match your employees’ contributions and the pension will also be topped up by the State at 33%, with employer and State contributions capped at €80,000 of earnings.
So this means that for each €1 saved by an employee, €2.33 would be credited to their pension savings account comprising their €1 personal contribution, plus €1 from their employer, plus €0.33 from the State.
Will there be a choice of funds under auto enrolment?
Employees will have a choice of four retirement savings funds to choose from, depending on their level of risk. Three of these funds will have differing risk/return profiles comprising a conservative fund, a moderate risk fund and a higher risk fund. The fourth option – a“lifestyle/lifecycle” investment profile – will be the default fund provided if the employee doesn’t express a preference.
What happens if an employee moves jobs?
The scheme will be set up on a ‘pot follows the member’ basis, so an employee’s pension is not linked to their employment but follows them as they move jobs.
This means workers will not have to join a new scheme each time they change employer and those who have more than one employment will have their pension savings combined into one pot.
Participants of the new scheme will be able to access their account via an online portal run by the CPA. They’ll be able to view account balances, contributions and investment returns and update information or suspend their payments.
What else should be considered?
The Central Statistics Office reports that 33% of people in employment have no private pension plan and will face a large drop in income inretirement. The pension auto enrolment scheme is aimed at those people who currently are not in a company pension scheme and to increase active participation of the private sector workforce in supplementary pension provision.
While the objective of auto-enrolment is to encourage people to make adequate provision for their income at retirement and this is welcomed, it doesn’t consider the other options that are available. For some sectors, these may be more beneficial. Consumers also still very much need to understand how much they need to set aside for their retirement. It is very important that both employees and employers seek advice so that everyone is aware of all of the options available to them.
We’re very happy to have a chat with you about what is right for you and your business, just contact us at Searing Point Wealth Management to arrange a suitable appointment.
