Auto-Enrolment: A radical shake up of the pensions landscape
Auto-Enrolment:
A radical shake up of the pensions landscape
“Automatic Enrolment has been talked about for decades, and today is a clear sign that we mean action.”
Heather Humphries, Minister for Social Protection, announced the publication of the landmark legislation, the Automatic Enrolment Retirement Savings System Bill 2024 on 5 April 2024, which was passed by both Houses of the Oireachtas and signed into Law on 4 July 2024.
Auto-enrolment is a new pension savings scheme for certain employees who do not have a private pension and it is expected to come into effect in January 2025. The main goal is to increase pension cover and adequacy in Ireland, as at present there is an approximate cohort of 35% of employees in the private sector who do not have a pension and will be solely reliant on the State Pension when they retire. It is a landmark reform in the Irish pensions landscape, and it means that approximately 800,000 workers will be entered into a pension scheme for the first time.
For employers, the new regime will present an additional cost and administrative burden so preparations will be key to minimize business disruption.
Eligibility
The following employees will be automatically enrolled into the new system:
- Those who do not have a pension scheme;
- earn more than €20,000 per year; and
- are aged between 23 and 60.
For employees earning less than €20,000 and who are outside the 23-60 age bracket, there will be an option for them to opt in, as long as they aren’t already in a pension scheme.
It is a semi-mandatory savings scheme which means that employees who are enrolled must stay in the scheme for 6 months and they will be free to opt out if they wish in months 7 or 8. Employees will be able to suspend or pause their contributions outside of the 6 month initial participation period. When an employee opts out or suspends their contributions then all contributions will cease.
It is important to note that if people move between jobs they will not have to change or join a new pension scheme. They will remain members of the Auto Enrolment Scheme on a ‘pot-follows the member’ basis.
How will contributions be calculated?
Auto-enrolment is co-funded by an employee, their employer and the state. For example, for every €3 that an employee puts in, the employer will also put in €3 and the state will top it up by €1. Contribution rates will be phased in so that employers and employees are given time to adjust to the system. The table below illustrates the phased approach.
| Year 1 to 3 | Year 4 to 6 | Year 7 to 9 | Year 10 + |
| 1.5% | 3% | 4.5% | 6% |
Employer’s Obligations
Employers will now have auto-enrolment obligations including:
- ensuring all employees meet the eligibility criteria who do not already have a pension scheme;
- ensure that payroll can take instructions for enrolment, calculate and pay employee and employer contributions to the National Automatic Enrolment Retirement Savings Authority (NAERSA);
- requirement to match employee’s contributions up to an eventual maximum of 6% subject to an earnings threshold of €80,000;
Employer contributions will be deductible for corporation tax purposes. If employers fail to meet the auto-enrolment obligations, they will be subject to penalties and prosecution.
Compliance and Enforcement
An independent body called the National Automatic Enrolment Retirement Savings Authority (“NAERSA”) will be set up under the new legislation. It is proposed that the NAERSA will administer the scheme, act in the best interests of the participants, as well as having inspection and enforcement powers. Employers will have certain obligations such as ensuring payroll can take instructions for enrolment, calculate and pay contributions to the Authority.
Offences include:
- (i) Failure of an employer to give notice of the determination and enrolment date in the system to an employee;
- (ii) Hindering an employee from participating in the system;
- (iii) Failure of an employer to pay contributions to the system on behalf of an employee;
- (iv) Obstructing or not cooperating with an authorised officer of the Authority.
Potential issues for employers:
- Employers will have to be aware of the distinction between their employees and independent contractors as auto-enrolment will apply to the former only.
- Auto-enrolment will not prevent employers from offering their own scheme to employees, especially in the case where that scheme may be more suitable for the employee’s circumstances. Employers should discuss the pension cover with their employees to ensure that the employee chooses the appropriate option for their needs whether that be auto enrolment or the employer’s pension scheme.
- Employers may end up with two cohorts of employees potentially paying different rates of contributions and build up benefits that are very different in value. This may create employee relations issues for employers where one cohort may be aggrieved at the higher benefits being received by the other group.
Where to start
With six months to go before auto-enrolment kicks in, now is the time for employers to take steps to prepare such as:
- Be aware of who it will apply to. Revenue have issued a guidance on determining employment status which will be of use to employers when evaluating who is employed under a contract for service.
- Carry out an Audit to determine who will be eligible for auto-enrolment and notify payroll ahead of its implementation.
- Review and update Company handbooks and contracts in accordance with the new scheme.
- Communicate with employees and flag changes ahead of time.
If you have any questions regarding the impact of auto-enrolment or require assistance to prepare, please contact any member of the OFX Employment Team.
On the topic of Pensions, Employers should also note the most recent Supreme Court decision in Mallon v The Minister for Justice and others [2024] IESC 20, which deals with mandatory retirement age. Please see our most recent article here https://www.ofx.ie/guidance-on-mandatory-retirement-in-light-of-the-mallon-decision/
Judith Curtin, Partner Amy Horgan, Trainee Solicitor
jc@ofx.ie amy.horgan@ofx.ie
021 4277788 021 4277788