The Automatic Enrolment Retirement Savings System Act 2024 was signed into law by the President of Ireland on 9th July 2024. The Act provides that it will come into operation when commenced by orders passed by the Minister for Social Protection. The Minister has stated that auto-enrolment will “become a reality” in 2025, though the exact timing of the commencement of the Act is not yet known.
Auto-enrolment (AE) is a new regime which will introduce mandatory retirement savings requirements for the first time. The Government is aiming to increase the number of employees who are currently saving for their retirement.
Under this new regime, employees will be automatically enrolled for pension contributions. This system will exist alongside any existing workplace pension scheme. Employers will be permitted to use their own existing scheme to meet AE requirements instead of using the AE system.
It is important that all employers understand the extent to which AE might impact them and the immediate and longer-term implications for both their business and employees.
Main Features
- Eligibility and Criteria: All employees not already in a workplace pension scheme, aged between 23 and 60 who earn over €20,000 per annum across all employments, will need to be automatically enrolled into the new AE system. New employees will be enrolled with effect from their first day of employment with an employer.
For employees outside the eligibility criteria, they will be able to ‘opt-in’ to the AE scheme, should they wish to do so.
Enrolment to the AE system will be compulsory for the first 6 months, after which employees can elect to ‘opt-out’. However, they will be automatically re-enrolled after 2 years, but can elect to ‘opt-out’ again. Employees who elect to ‘opt-out’ can receive a refund of their own contributions paid up to the point of ‘opt-out’. Employer contributions and the State top-up will remain in the pension fund but will cease until an employee is re-enrolled.
The option to ‘opt-out’ will only apply in the first 10 years after which employees will only be allowed to cease their contributions. They will not be allowed to take a refund of their own contributions, but instead the contributions will remain in the pension fund.
- Contributions: Employee contributions made under the AE system will not qualify for income tax relief. Instead, the State will top up contributions at a rate of €1 for every €3 the employee contributes. This is equivalent to 25% tax relief. For employees, this means that their contribution will be deducted from their after-taxed earnings and not from their gross earnings.
Other pension schemes will continue to be supported by tax relief, which can reach up to 40% depending on their earnings level.
The AE system will be introduced on a phased basis over a ten-year period to allow employees and employers adjust to auto-enrolment. The phased implementation and contribution rates will be as follows: –
| Years | Employee
Contribution (% of salary) |
Employer
Contribution (% of salary) |
State
Contribution (% of salary) |
Total
Contribution (% of salary) |
| 1 to 3 | 1.5% | 1.5% | 0.5% | 3.5% |
| 4 to 6 | 3.0% | 3.0% | 1.0% | 7.0% |
| 7 to 9 | 4.5% | 4.5% | 1.5% | 10.5% |
| 10 plus | 6.0% | 6.0% | 2.0% | 14.0% |
The employer contribution and the State top-up will be based on a maximum gross salary of €80,000 per annum.
For employees who are already in a workplace pension scheme, whereby the employer is contributing, they will not be enrolled into the AE system.
- Administration and Investment: The AE system will be administered by the National Automatic Enrolment Retirement Savings Authority (NAERSA). They will have the responsibility to ensure compliance, under the aegis of the Department of Social Protection.
Tata Consultancy Services (TCS), a leading global IT services, consulting, and business solutions organisation, has been selected as the preferred bidder to administer the system as a managed service.
Meeting Auto-Enrolment Obligations
Where an employer currently provides a workplace pension scheme, this will likely be a better retirement benefits solution for both the employer and employees than the AE system.
However, it is understood that employers will not be able to simply enrol their affected employees into their own workplace pension scheme. The consent of the employee will be needed. If the employee does not consent, they will be automatically enrolled into the AE system. This presents a real conundrum for employers who will want to avoid the administrative complexity of having to operate two parallel retirement benefits arrangements for employees, not to mention the potential confusion this will create for employees.
This places an even greater emphasis on the importance of an effective employee engagement process, where the merits of joining the current workplace pension scheme can be outlined and the employee’s agreement to join the scheme obtained.
Employers that do not currently provide a workplace pension scheme will need to carefully consider which approach will best suit them and their employees.
Employers who have a small number of employees, or who employ staff on lower incomes and/or typically for shorter periods, may find the AE system a more suitable option.
Cost of Auto-Enrolment
Many employers are already undertaking preliminary cost analyses. There may be initial costs to address relating to implementing AE requirements.
The principal immediate and ongoing cost consideration relates to payment of employer contributions in respect of all affected current and future employees. This will be the case irrespective of the pension vehicle that is chosen to meet AE requirements.
Employers will also need to understand how contribution costs will increase over time. Under the AE system, contribution rates will increase on a phased basis over the first 10 years of the regime. These minimum rates proposed under the AE system will be relevant not just to any employee not already enrolled in the AE system, but also for employees who are in the workplace pension scheme, but not currently contributing at the minimum level required.
Employer Considerations
The introduction of AE is a significant event for employers. The planning and budgeting process for the commencement of AE should start now. In particular employers should: –
- Make sure they have identified all of their employees who will or could be affected by AE,
- Make sure they fully understand all of the potential cost implications,
- Consider what approach will be required to meet AE obligations that will best suit their business in the initial phase,
- Consider the potential impacts on their existing workplace pension scheme (if relevant),
- Start formulating their strategy for effective communication to employees of their decisions. Employers should consider how AE will impact their business and whether any changes need to be made to their existing workplace pension scheme at this stage.
Please speak to our Corporate Pensions team now.
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