Auto-enrolment (AE) is set to transform the pension landscape in Ireland, ensuring employees have access to a retirement savings plan. While initially anticipated for late 2024, the Government has confirmed a revised launch date of 30 September 2025 under the new title “My Future Fund.”
This additional time provides employers with the opportunity to fully understand their responsibilities and prepare for the significant changes ahead. Let’s discuss further in this guide!
Why Auto-Enrolment?
Over 800,000 workers in Ireland currently rely solely on the state pension for retirement, leaving many financially vulnerable. AE aims to address this issue by introducing mandatory pension contributions for eligible employees.
This initiative stems from recommendations in the 2010 National Pension Framework, which sought to address the challenges of Ireland’s changing demographics and ensure long-term financial security for the workforce.
Key Features of Auto-Enrolment
- Eligibility:
Employees aged 23-60 earning over €20,000 annually will be automatically enrolled if they are not part of an existing pension scheme. Employees aged 18-22 or over 60 may opt-in voluntarily.
- Contributions:
Both employers and employees must contribute a percentage of gross salary, starting at 1.5% and increasing incrementally to 6% by year 10. Employee contributions are not tax-deductible; instead, the Government will provide a top-up, starting at 0.5% and rising to 2% over the same period. Contributions apply only to salaries up to €80,000, and fixed rates ensure consistency.
- Opt-Out Provisions:
Employees may opt out after six months but will be re-enrolled every two years. A suspension of contributions for up to two years is also allowed.
- Immediate Enrolment:
There is no waiting period; contributions begin from the first day of employment.
Implications for Employers
Employers must prepare for AE by assessing their current pension provisions, understanding contribution requirements, and educating employees about the changes.
- Existing Pension Schemes:
Employers with existing schemes need to identify employees not currently covered and decide whether to include them in the existing plan, establish a new scheme, or opt for My Future Fund. Each option has distinct benefits and costs.
- Budgeting and Payroll Adjustments:
Employers must plan for phased contribution increases and assess the impact on payroll budgets. Early financial planning can ease the transition.
- Employee Awareness:
Clear communication about AE and its implications is vital. Employees will need guidance on contributions, opt-out options, and potential tax impacts.
- Tax Relief vs. State Top-Up:
Employers should explain the differences between tax relief on Defined Contribution (DC) schemes and the Government top-up under AE. In some cases, existing schemes may offer better outcomes for employees, particularly for those in higher tax brackets.
Preparing for Change
AE marks a pivotal shift in retirement planning for Irish workers and employers. By understanding the framework and preparing adequately, businesses can ensure compliance while supporting employees in building a secure financial future.
