It’s 2024, the year when pension auto-enrolment is due to be introduced. Anne O’Doherty gives us an update on the status of the proposal, the timeline and what considerations need to be considered at this stage.
What is pension auto-enrolment?
Auto-enrolment is a new system to try to encourage people to make adequate provision for their income at retirement. It will work by having employers automatically enrol their employees into a workplace pension scheme. It is aimed at those people who currently are not in a company pension scheme. This is to increase active participation of the private sector workforce in supplementary pension provision.
What is the current timeline for introduction?
The proposal announced in 2022 had auto-enrolment scheduled to go live from the first quarter of 2024. That means that all employees not already contributing to an existing employer pension scheme and within certain age and earning parameters, will be required to automatically enrol in the new scheme. However, we are still awaiting the publication of the Automatic Enrolment Bill. The commencement date is currently now flagged as the second half of 2024, according to the Department for Social Protections website.
Who will be automatically enrolled?
All employees earning over €20,000 per year, aged between 23 and 60, and who aren’t already in a pension scheme will automatically be enrolled into the scheme. Those outside the earnings and age brackets, and who aren’t already in a pension scheme, will not be auto enrolled. However, they may choose to opt in if they wish.
How does the scheme work?
The current design is set up so that all employee contributions will be matched by the employer and topped up by the State. The initial employee contribution will start at 1.5% of gross pay, increasing to 3% in year 4, 4.5% in year 7 and a maximum of 6% in year 10. This translates to a total of 3.5% of an employee’s salary in year one (1.5% from each of the employee and employer plus 0.5% top up from the State). On the phased basis, in year 10 this would then be a total contribution of 14% (6% from each of the employee and employer plus 2% top up from the State).
What do employers need to be aware of?
- Eligibility Criteria
Group pension schemes tend to have an eligibility period, often mirroring a probationary period. The average length of time is usually around 6 months. However, now on joining a company, an employee will be automatically enrolled into the new state scheme. This will be until such time as payroll detects an employer’s contribution into an alternative arrangement. There will be circumstances where an employee is auto enrolled and then sometime later is eligible for the existing company arrangement.
- Alternative Arrangements
The objective of auto-enrolment is to encourage people to make adequate provision for their income at retirement. What it doesn’t consider is the other options that are available. Some of these might be more beneficial for certain people, particularly those who are higher rate taxpayers. It’s very important that employers seek advice and enable this cohort to be educated in the various options.
- Existing Schemes
Auto-enrolment by its nature is not voluntary, whereas most existing company arrangements are. That means that employees do not have to join the company scheme. For employers, with existing schemes in place, this may mean that it will become necessary to adjust these to ensure all employees have immediate, compulsory membership. Again, there is an education aspect required here so that both employers and employees understand their options.
What do employees need to be aware of?
- Auto-enrolment
The scheme will do what it says on the tin. That is all employees earning over €20,000 per year, aged between 23 and 60, and who aren’t already in a pension scheme will automatically be enrolled into the scheme. There may be alternative options available to them and it is strongly recommended to seek professional advice.
- Opting out
Employees who are enrolled will have to stay in the system for 6 months. They will then be free to opt out in months 7 and 8 if they so wish. In the first ten years, employees will also be able to opt out in months 7 and 8 after each contribution rate increase. Employees who opt out or suspend their contributions will be automatically re-enrolled after two years. This is once they are still eligible for the scheme.
Overall, slowly we are getting closer to Pension Auto-Enrolment. But there is still a lot of questions around how the scheme will work in practice. There is an amount of education required for employers and employees. This will help ensure that they are fully informed about all their retirement options. When, and if, the scheme does roll out later this year the implementation will certainly cause some teething problems. In all likelihood this is going to be a far less flexible option than some of the alternatives. Our advice for all employers and employees is to seek professional advice as to the most appropriate option for their circumstances.
