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 for the end of this year, 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.
- Are not currently part of a pension plan.
Employees earning less than €20,000 annually or outside the 23-60 age range can opt into the scheme if they do not have an existing pension plan.
Contributions and Benefits
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:
| Year of the Scheme | Employee Contribution Rate | Employer Contribution | Government Contribution |
|---|---|---|---|
| 1 to 3 | 1.5% | 1.5% | 0.5% |
| 4 to 6 | 3% | 3% | 1% |
| 7 to 9 | 4.5% | 4.5% | 1.5% |
| 10 and after | 6% | 6% | 2% |
Example Contribution
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 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.
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.
