New Workplace Pension Scheme for Ireland

In October 2022 the government approved the General Scheme of the Automatic Enrolment Retirement Savings Bill 2022, and it is currently undergoing pre-legislative scrutiny.

In this article, we take a look at what we know so far about auto-enrolment(AE) and the upcoming legislation.

At the moment there is only a legal provision for a state pension and private (occupational) pensions are discretionary. The purpose of the AE retirement savings system is to address the low level of supplementary pension coverage. AE is a system where employees who do not have occupational or supplementary pension arrangements are automatically enrolled in a retirement savings scheme.

Key features of Auto Enrolment are:

• Initially 750,000 workers will be enrolled in a new workplace pension scheme, which will grow significantly over time;

• Participation in the new scheme will be voluntary – workers will have the ability to opt out or to suspend participation for periods of time;
• The scheme will include matching employer and employee contributions and a State top-up;
• For every €3 saved by a worker, a further €4 will be credited to their savings account.

What this means for employers

Employees earning more than €20,000 (across all their employments) will have the benefit of an occupational or workplace pension.

• Unlike other occupational pension schemes, employers will not need to establish a scheme, or procure a pensions provider or pensions administrator, or select a savings option for their employees.
• The pension scheme will be administrated by a Central Processing Authority (CPA), rather than by the employer.
• Employers will, however, need to ensure that their payroll process is able to take instruction for enrolment and is able to calculate and remit both employee and employer contributions to the CPA.
• Employers will be required to match employees’ contributions, which will be introduced on a phased basis, commencing at 1.5% of member’s earnings, up to an eventual maximum of 6% in Year 10, subject to an earnings threshold of €80,000.
• Employer contributions will be deductible for corporation tax purposes.
• Failure of the employer to implement a payroll instruction for enrolment, and/ or to deduct and remit contributions as required will be subject to administrative penalty initially and to prosecution as a criminal offense if sustained.

Timeline for implementation

It is currently forecasted the AE legislation will be enacted by the end of 2023, and that employee enrolments will commence in 2024. The introduction of Auto Enrolment will be very gradually phased in over a decade, with both employer and employee contributions starting at 1.5%, and increasing every three years by 1.5% until they eventually reach 6% by Year 10 (2034). This steady phasing allows time for both employers and employees to adjust to the new system.

Once implemented, AE will create an additional cost for employers who do not already provide a pension scheme for their employees.

As the bill is still not published and many of the key details may be subject to change, employers do not need to take immediate action in relation to AE. However, it is important for all employers to be aware that this change is coming, and to start to consider the administrative needs and additional costs.

MSS the HR People will be keeping you informed and up-to-date on the progress of the bill and the final enactment of the AE legislation.