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Minister for Social Protection, Heather Humphreys TD, announced the publication of the Automatic Enrolment Retirement Savings System Bill 2024 in early April.

Although a State backed automatic enrolment pension system has been on the legislative agenda as far back as 2006, the publication of draft legislation signals that there is likely to be meaningful developments in this area over the next twelve months.

The following is what we know so far…

The Facts

  • Under Automatic-Enrolment (AE), Employees will have access to a workplace pension retirement scheme which is co-funded by their Employer and the State.
  • Ireland is the only country in the OECD that does not yet operate an AE system or similar system as a means of promoting pension savings.
  • The key feature of AE is that it will operate on an ‘opt-out’ rather than an ‘opt-in’ basis.
  • A tender process to appoint a pensions administrative service to run the AE system is underway. This new State body, the National Automatic Enrolment Retirement Savings Authority, will administer the scheme and function as a buffer between participants and the financial investment companies who will be tasked with growing their savings. The Authority will act in the best interests of participants, collect contributions, arrange for the investment of contributions, manage participant accounts that will be accessible through an online portal, and facilitate the payment of savings at retirement.
  • A separate procurement exercise to appoint the financial investment management services is also underway.
  • First enrolments under AE are scheduled to happen at the start of 2025 and will be very gradually phased in over a decade.
  • Eligible Employees will be automatically enrolled/‘opted-in’ but will have the choice after six months’ mandatory participation to opt-out or suspend participation.
  • Employees will have a range of three retirement savings options to choose from at a higher, medium and low risk investment strategy.
  • 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.
  • Employers will not have to invest in the establishment or procurement of an occupational scheme for their own businesses. They will simply be required to facilitate payroll deductions.
  • Services will be provided and supported through an online channel where participants can monitor their savings and investments.

The Figures

  • All Employees not already in an occupational pension scheme or equivalent, aged between 23 and 60 and earning over €20,000 across all of their employments, will be automatically enrolled.
  • Under AE, around 800,000 workers will be brought into a retirement savings scheme for the first time.
  • For every €3 saved by the Employee, the Employer will also contribute €3, and the State will contribute €1 – that is every €3 contribution by an Employee automatically grows to €7 before it is invested.
  • Matching contributions will be required up to a maximum of €80,000 of earnings.
  • Starting in 2025, Employees will contribute 1.5% of their gross earnings, which will be matched by their Employer, and topped-up by the State.
  • These rates will gradually increase every three years until reaching a maximum contribution rate of 6% per Employee, 6% per Employer, plus 2% from the State from 2034 onwards.
Contributor Year 1 to 3 Year 4 to 6 Year 7 to 9 Year 10+
Employer 1.5% 3% 4.5% 6%
Employee 1.5% 3% 4.5% 6%
State 0.5% 1% 1.5% 2%
  • It is estimated that a worker on the national average wage contributing consistently for 40 years could build up a savings pot of nearly €750,000, including investment returns, over the course of their working life.

Employer Preparation
The Government points out that the only Employer compliance step will involve ensuring that payroll processes are ready in advance of the launch of the auto-enrolment system.

The phased introduction of the scheme should allow enough runway to ensure Employers can deal with any teething problems.

Employers will nonetheless have to prepare for the following:

  • Employee Queries
    Employees are likely to have questions and concerns. Employers should therefore consider how to communicate the upcoming changes to Employees and consider who is best positioned to deal with queries.
  • Employment Contracts
    Pay and benefits clauses will need to be reviewed to ensure they reflect the position under auto-enrolment.
  • Payroll Processes
    Employers also need to work closely with their payroll provider or payroll department to ensure that the relevant processes and deductions are in place before the scheme launches.
  • Impact on Labour Costs
    Finally, Employers will need to consider the financial impact of making matched pension contributions. The long-term maximum contribution of 6% of earnings up to €80,000 could represent a substantial increase in labour costs and needs to be considered as part of budgeting procedures and ongoing financial management.

 

If your Organisation needs advice, support or guidance in relation to this or any HR issue, contact Adare by phone on (01) 561 3594 or email info@adarehrm.ie.

Adare is a team of expert-led Employment Law, Industrial Relations and best practice Human Resource Management consultants.