The scheduled date for the introduction of the auto-enrolment (AE) pension system is Q4 2024. Auto-enrolment is a new pension savings scheme for certain employees who are not paying into a pension. They will be automatically included in the scheme but can opt out after 6 months. Under the scheme, the employee, employer and Government all pay a certain amount into the employee’s pension fund.
Employers will be required to enrol employees into an Auto Enrolment system where they are:
• between the ages of 23 and 60, and
• who earn more than €20k per annum, and
• who are not already a member of a PRSA or occupational pension scheme.
For those employees outside the above parameters they still be able to enrol in the AE system.
How much will an employee pay?
An employee will pay a set % rate of their annual salary, with their employer obliged to match their contribution, and the Government contributing an additional amount. The employee cannot pay more or less than the set rate.
In the first year, the employee and the employer will pay 1.5% of annual salary. This will increase to 6% by year 10.
- Year 1 to 3: Employee Contribution 1.5% Employer Pays 1.5% Government Pays 0.5%
- Year 4 to 6: Employee Contribution 3% Employer Pays 3% Government Pays 1%
- Year 7 to 9: Employee Contribution 4.5% Employer Pays 4.5% Government Pays 1.5%
- Year 10+: Employee Contribution 6% Employer Pays 6% Government Pays 2%
Key information about the new Auto Enrolment (AE) Pension Scheme
• Employees will be able to opt-out of auto-enrolment after 6 months
• Employees will automatically be re-enrolled after 2 years, but can choose to opt-out of auto-enrolment in the future
• When employees change job, their accumulated pension contributions will follow them in the same fund (a “pot follows member” approach)
• Employee pension contribution will be eligible for tax relief (20% or 40%)
• Employer pension contribution is tax deductible as a business expense and is not deemed a benefit in kind in the hands of the employee
The employer’s and the Government’s contributions are capped at €80,000 gross annual salary. If an employee earns over €80,000, he or she can still contribute but the employer or the Government won’t match their contributions on any income over €80,000.
Impact of the new Auto Enrolment (AE) Pension Scheme for Business Owners
• Employers will need to be financially ready to make contributions (i.e. budget for this future cost)
• Ensure that their systems are ready (i.e. payroll process will be impacted). Good software will be required
• Employee contracts will need to be updated to explain auto enrolment
• Employers will need to have a workable mechanism for employees to opt-in and opt-out of their scheme and allow for contribution holidays
If an employer does not meet their auto-enrolment obligations, they will be subject to penalties and possibly to prosecution.
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