The Automatic Enrolment Retirement Savings System Act 2024 was signed into law on 9th July 2024. Auto-enrolment will apply to all existing and new staff, including probation staff and casual and part-time staff. Although the rollout of pension auto-enrolment in Ireland is scheduled to roll out later in 2025, only one in five payroll and HR professionals feel ready for the impending change.
In this short guide, we'll break down auto-enrolment and what it means for employers and employees.
What is Auto-enrolment?
Auto-enrolment is a new pension savings scheme set to begin in January 2025, designed for employees who do not currently contribute to a pension. This initiative will automatically include eligible employees in the scheme, though they can opt-out after six months.
The scheme mandates contributions from the employee, their employer, and the Government into the employee’s pension fund. A newly established public body, the National Automatic Enrolment Retirement Savings Authority (NAERSA), will administer this scheme under the supervision of the Pensions Authority.
Why is Auto-enrolment Important?
Many employees lack a pension plan, making them reliant solely on the state pension upon retirement. While the state pension helps avoid poverty in retirement, it often does not meet the financial expectations of many retirees. Auto-enrolment aims to provide additional financial security by supplementing the state pension with employer and government contributions.
Who Will Be Automatically Enrolled?
Employees will be automatically enrolled if they:
- are aged between 23 and 60;
- earn €20,000 or more per year; and
- is not a member of a pension scheme (that is, no employer or employee pension contributions are being paid).
The definition of Employee includes anyone who is directly employed, including variable hours staff, seasonal workers and short-term contract workers.
It's also important to note that any employees earning less than €20,000 per year and/or who are aged outside the 23-60 bracket will be able to opt in, as long as they aren’t already in a pension scheme provided by their employer.
Contributions and Benefits
The contribution rates for auto-enrolment are to be phased in over a period of ten years. All employee contributions will be matched by the employer and topped up by the State. The legislation sets out that an upper threshold of €80,000 applies to earnings for the calculation of contributions. Contributions will be fixed, and employees won’t be able to contribute more or less than the set rate.
| Year of the Scheme | Employee Contribution | Employer Contribution | Government Top-up | Total Contributions |
|---|---|---|---|---|
| 1 to 3 | 1.5% | 1.5% | 0.5% | 3.5% |
| 4 to 6 | 3% | 3% | 1% | 7.0% |
| 7 to 9 | 4.5% | 4.5% | 1.5% | 10.5% |
| 10 and after | 6% | 6% | 2% | 14.0% |
Example Contribution
For every €3 an employee contributes, the employer adds €3, and the Government tops up with €1. Thus, a total of €7 is added to the employee’s pension account for every €3 they contribute. Contributions will gradually increase to allow employees to adjust to the new system. For an employee earning €20,000 annually:
| Year of the Scheme | Employee Pays | Employer Pays | Government Pays | Total Payments per Year |
|---|---|---|---|---|
| 1 to 3 | €300 | €300 | €100 | €700 |
| 4 to 6 | €600 | €600 | €200 | €1,400 |
| 7 to 9 | €900 | €900 | €300 | €2,100 |
| 10 and after | €1,200 | €1,200 | €400 | €2,800 |
Maximum Contributions
Employer and Government contributions are capped at a gross annual salary of €80,000. For the first three years, the maximum annual contribution from the employer is €1,200, and from the Government is €400. Employees earning over €80,000 can still contribute, but additional contributions will not be matched by the employer or the Government for the income above €80,000.
Flexibility and Opt-out Provisions
Employees can opt-out after six months and receive a refund of their contributions. If opting out due to a change in contribution rates during the first ten years, the refund will reflect the difference in contribution rates. Employees can also suspend their contributions at any time without receiving a refund and will be automatically re-enrolled after two years if still eligible.
Impact on Employers
Employers benefit by supporting their employees' future financial security without the administrative burden of setting up a pension scheme. Non-compliance by employers can result in penalties and prosecution. It is important to assess the potential additional costs for current employees who are not members of a pension scheme. Understanding how much Auto Enrolment will cost is a key consideration when putting any plan together.
Changing Jobs
If an employee changes jobs, their pension contributions follow them under a 'pot-follows-the-member' basis managed by NAERSA. There is no need for the employee to change pension schemes.
Further Guidance
It is important to recognise that it may be difficult to avoid Auto Enrolment entirely. Therefore, you must be prepared for Auto Enrolment even if you believe it will only impact you in a limited capacity. Guidance from PwC Ireland can be downloaded here.
Munro O'Dwyer, Partner at PwC Ireland, shared his extensive expertise on managing the complexities of auto-enrolment in a webinar with HR Duo that is available to stream on-demand now.
