In this month’s issue we discuss the Pensions Auto enrolment Update
Pensions Auto Enrolment Update
Auto Enrolment
An Auto Enrolment Pensions Bill was passed by government on the 27th of March 2024. According to the Department of Social Protection, the reason cited for setting up an auto enrolment system in Ireland is that not enough people have occupational or supplementary pension coverage to help maintain a reasonable standard of living in retirement above the level of the State Pension.
The introduction of the Auto-Enrolment Retirement Savings Scheme, called My Future Fund, will start from 30 September 2025.
A body known as An tÚdarás Náisiúnta um Uathrollú Coigiltis Scoir (the “Authority”) will be established to run the auto enrolment scheme.
Who Will Be Automatically Enrolled?
Approximately 800,000 employees who are aged between 23 and 60, earning over €20,000 across employments, and who are not already enrolled in an occupational pension scheme, qualifying Personal Retirement Savings Account (PRSA) or qualifying trust Retirement Annuity Contract (RAC) with an employer making contributions.
Exempt Employment
Employment, whereby, the employer makes contributions for the benefit of the employee, in respect of the employment of the employee at that time, to aqualifying occupational pension scheme, qualifying Personal Retirement Savings Account (PRSA) or qualifying trust Retirement Annuity Contract (RAC).The Authority, in consultation with the Pensions Authority,shall draw up standards that these pension products must meet in orderto exempt employees contributing to these schemes. These standards have yetto be published.
Opt In/Opt Out
The system will be voluntary but will operate on an ‘opt-out’ rather than an ‘opt-in’ basis.
- Eligible employees will be automatically enrolled/‘opted-in’ but will have the choice after six months’ mandatory participation to opt-out or suspend participation.
- Opt out can occur after 6 months but not more than 8 months after the date on which notice of enrolment, and there will be opt out windows after years 1–3 , 4 – 6 and 7 – 9.
Persons will be exempt from re-enrolment if they, have reached pensionable age or they are contributing to a pension which meets the standards set out by the Authority. These standards have yet to be published.
How Much Will it Cost?
Contributions will be paid by employees, and matched by their employers, as a percentage of the employee’s gross income. The State will top-up the rest. The rates of contribution will be phased-in gradually over a decade as follows:
Years 1-3:
Employee: 1.5%
Employer: 1.5%
State: 0.5%
Years 4-6
Employee: 3%
Employer: 3%
State: 1.0%
Years 7-9
Employee: 4.5%
Employer: 4.5%
State: 1.5%
Year 10 + :
Employee: 6%
Employer: 6%
State: 2%
Employer contributions and the State top-up will be capped at a maximum €80,000 of an employee’s gross salary.
Auto Enrolment Provider and Risk Levels
The Auto Enrolment investment fund providers/investment management have yet to be determined, but the risk levels have been selected in to high, medium, and low risks.
- Higher risk level, consisting of Auto Enrolment provider schemes with a risk rating of 5, 6 or 7.
- Medium risk level, consisting of Auto Enrolment provider schemes with a risk rating of 3 or 4.
- Lower risk Level, consisting of Auto Enrolment provider schemes with a risk rating of 1 or 2.
Employees who do not make an active choice will be placed in a default investment strategy on a ‘lifecycle’ basis’, moving them from the higher to the medium to the lower risk fund in accordance with their age as they approach retirement.
- Where the period before the participant reaches pensionable age is more than 15 years, the higher risk level.
- Where that period is 15 years or less, but more than 5 years, the medium risk level.
- Where that period is 5 years or less, the lower risk level.
How Will It Be Managed?
An tÚdarás Náisiúnta um Uathrollú Coigiltis Scoir (the “Authority”) with be
set up to administer the scheme and will:
- Administer the system on behalf of enrolled employees, their employers, and the State.
- Collect, pool, and distribute contributions to commercial investment managers.
- Collect, pool, and distribute financial investment returns to participants.
- Operate an online accounts portal where participants can see their savings.
- Facilitate a ‘pot-follows-member’ system whereby participants will benefit from owning one single Auto Enrolment pension pot across employments and throughout their working lives.
- Set standards for the commercial registered providers of Auto Enrolment investment products.
Employer Personal Retirement Savings Account (PRSA) contribution limits
An employer PRSA contribution limit of 100% of the employee’s remuneration now applies. In practice the limit will generally be based on the salary received by the employee up to the point the employer PRSA contribution is made.
Any employer PRSA contribution over the limit will not get tax relief and will result in a BIK(Benefit in Kind) liability for the employee.
Watch out for
- Clients with PRSAs where the employer is paying a regular contribution of more than 100% of their monthly salary. These contributions may have to be reduced or moved to a company pension.
- Employer single premiums to PRSAs – check the single premium is not more than 100% of the salary received by the employee year to date.
For further details and to read the Automatic Enrolment Retirement Savings System Bill 2024, please click HERE
To find out more about Pensions Auto Enrolment do not hesitate to contact a member of our advisory team at Jim@hegarty.ie, Niamh@hegarty.ie, Frank@hegarty.ie & Ross@hegarty.ie or alternatively you can call the office directly on 01 4972544
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