After many delays and postponements, the government has finally announced details of the new automatic enrolment pension system in Ireland. The new system is designed to simplify pensions for both employees and employers, encouraging employees to contribute to their retirement.
The system is designed such that employees are automatically enrolled into the scheme and cannot opt-out for a period of six months after enrolment. Employers will be required to contribute equally to their employees and the state will contribute at a rate of 33% of an employee’s contribution.
What does this mean for employees?
For each €3 contributed by the employee, an additional €4 is contributed to the pension pot – €3 from the employee, €3 from the employer and €1 from the state. Matching contributions are required for the employer and the state up to an employee earning limit of €80,000 – employees can continue to contribute beyond this value, but there is no obligation on the employer to do so, and state will stop.
NOTE: Instead of offering tax relief on the pension contributions, as the case is now for qualifying pensions, the state will contribute 33% of an employee’s contribution to the pension pot.
Who will be automatically enrolled?
The system has been designed to include as many employees as possible, with little criteria required to be enrolled. Employees between the ages of 23 and 60, earning more than €20,000 per year and who do not already contribute to a qualifying pension scheme will be automatically enrolled. There will be no method of not being automatic enrolled initially, just an option to opt-out after six months. Employees who have opted out will be automatically enrolled once again after two years from the initial enrolment, requiring employees to complete the opt-out procedure again. Employees who are not automatically enrolled will have the option to opt-in to the system if they wish.
When will the system come into effect?
The system will be operational from January 2024 and contributions will start at 1.5% of an employee’s pensionable pay – the 1.5% contribution rate will increase by 1.5% every three years, rising to 6% from year 10.
How will this impact employers?
The new system will require plenty of planning and reviewing of current operations to ensure a smooth on-boarding into the new system. An important part to start with will be communication of the system to employees – for example, the benefits to enrolling, the contribution rates and tax implications. A review of employee contracts and agreements should be undertaken to ensure that employment contracts include the new pension system details and how that might impact existing and new employees.
The system has been designed to be simple to operate for employers with low administration, small contributions to begin with and small management fees. As part of the system, a new central authority will be established to manage the new system and ensure the rules are being adhered to. Strong penalties will be issued where employees are encouraged to opt out of the system or details of the scheme have not been correctly communicated as examples.
Accountancy Focus will be available to guide and support you through this significant change in your relationship with your employees. With many years of experience in automatic enrolment pensions in the UK, our knowledgeable payroll team will be on hand to help your business start off automatic enrolment in Ireland in the right way. Contact us below to book an automatic enrolment consultation today!