14 May 24
Pension Auto Enrolment
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The implementation of a statewide auto-enrolment (“AE”) pension system has been under consideration in Ireland since 2006 and has gained considerable momentum over the past year.
On 5 April 2024, the Irish Government published the Automatic Enrolment Retirement Savings System Bill 2024 (the “Bill”) to establish an AE pension system for employees who are not already covered by qualifying pension arrangements. The Bill will be subject to change as it passes through the chambers, however, the Minister for Social Protection, Heather Humphreys, (the “Minister”) is aiming to have the Bill implemented in the latter half of 2024, with a gradual phasing-in of increasing contribution rates over the next ten years. This means, that employers will have approximately 7-8 months to prepare for the change, in order to be ready to make their first contributions by 1 Jan 2025. Set out below are a variety of factors in which employers should consider in anticipation of the Bill being implemented.
Competent Authorities
One of the most notable advancements under the Bill is the establishment of a new competent authority, the National Auto-Enrolment Retirement Savings Authority (the “AE Authority”). The AE Authority will be responsible for the management and administration of AE in Ireland.
The AE Authority is expected to be subject to fiduciary obligations, whereby they will be required to carry out tasks with a duty of care, loyalty, good faith, confidentiality and is expected to be completely digital by default. It will also be responsible for:
The provision of related information and services;
The investment of contributions with investment management providers;
Facilitating the payment of retirement savings;
Monitoring and enforcing compliance; and
Undertaking research relating to retirement savings services.
The AE Authority is also expected to have strong investigative and enforcement powers. They will monitor compliance with the AE system and will have the power to take necessary actions, such as prosecution and fining, against non-compliant employers and employees. These powers include the authority to issue compliance notices and fixed-penalty notices and new offences extend to fines of up to €50,000 and possible imprisonment.
Additionally, the AE Authority is expected to have the power to “name and shame” employers who are found to have been non-compliant with the AE system, whereby they will publish the name of the employer on their website for a period of up to two years.
Employees in Scope for AE
Employees eligible for AE in Ireland must meet the following criteria:
Age between 23 and 60
Not currently members of a qualifying pension plan
Annual earnings of €20,000 or more
Even if an employee does not satisfy the standard conditions for auto-enrolment, they can still exercise their right to opt in voluntarily
The Bill proposes three sources of contribution, paid as a percentage of an employee’s gross pay, as follows:
| Source | Years 1-3 | Years 4-6 | Years 7-9 | Years 9+ |
|---|---|---|---|---|
| Participant | 1.5% | 3% | 4.5% | 6% |
| Employer | 1.5% | 3% | 4.5% | 6% |
| State | 0.5% | 1% | 1.5% | 2% |
The AE system provides that for every €3 an employee contributes to their pension fund, this will be matched by €3 from their employer and an additional €1 from the Government. This results in a total of €7 being added to the employee’s pension fund for every €3 contributed.
Opt Out/Re-Enrolment
The Bill provides that all employees eligible for the scheme have the right to opt out if they so wish. However, they must do so within the “Opt-Out Window”, which will occur after 6-7 months of being opted into AE. If an employee chooses to opt out during this period, they will receive a full refund based on the difference between their own contributions and their employers’ contributions. The employee will be automatically re-enrolled into the AE system after 2-3 years.
The AE Authority will determine the conditions for both enrolment and re-enrolment to the AE system, however, it is the employer’s obligation to notify their employee if either event takes place. Failure to do so will be considered an offence and will be subject to either a fine or prosecution by the AE Authority.
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Proactivity Now Required from Employers
As the first contributions to the scheme are expected to be made by 1 January 2025, employers should now be engaging in active preparations. In particular, employers who outsource their payroll should talk to their payroll providers to determine whether they have the capacity to take on the accounting treatments involved in both employee and employers’ deductions. If not, they should consider assessing other service providers.
Employers need to be ready to provide employees with information about how the scheme will function, covering aspects such as eligibility, contribution rates, and potential increases. Additionally, seeking legal advice is essential to ensure that existing employee contracts align smoothly with the implementation of the new system.
Take Aways
The Bill aims to address the lack of retirement provisions for approximately 800,000 working individuals in Ireland. If successfully implemented, it could establish a pension system for this significant workforce segment. However, time constraints pose challenges for substantial debate on the Bill’s provisions before its potential passage and implementation by the end of 2024. Employers and fund providers will face intense compliance pressures, and navigating legal and practical issues will be crucial. Employers should carefully assess the implications for their businesses as this initiative progresses.
For more information, or to find out how Cafico International can assist your business, please reach out to Niamh Manning.