Auto-enrolment in Ireland
The legislation to introduce auto-enrolment (AE) to Ireland and bring it into line with other Organisation for Economic Co-operation and Development member countries is currently in draft stage and is expected to eventually take effect in 2024. We do know quite a bit about the legislation as the government has just recently published the Final Design Principles, a document detailing the proposed format and elements of the legislation, and this is a move which has long been considered in Ireland.
The AE system will function as a new savings and investment scheme for employees in Ireland, where financial returns are paid out to participants on retirement, in addition to the state pension.
Who is eligible?
All private sector workers aged between 23 and 60 years of age who earn more than €20,000 per year (the Eligibility Criteria) will be automatically enrolled into the new scheme (the AE Scheme) unless they are a member of an existing pension scheme (which fulfils the AE Scheme requirements at the time which they come into force), including a Personal Retirement Savings Account (PRSA) (see further below). Those who fall outside the Eligibility Criteria will not be automatically enrolled but will have the ability to opt in.
How will auto-enrolment work?
Members who meet the Eligibility Criteria will be required to remain in the AE Scheme for a minimum period of six months. At the end of this six-month period, there will be a two-month window during which the employees can opt out of the AE Scheme and have their contributions returned to them. Employees who choose to leave the AE Scheme will then be automatically re-enrolled at the end of a two-year period but will have the ability to opt out again after six months. This opt-out mechanism will change after the first 10 years.
Contributions made to the AE Scheme by employees, employers and the state will be phased year by year in accordance with the below table. Employer contributions are only required if the employee makes contributions.
|Years||Employee contribution as % of gross salary||Employer contribution as % of gross salary||State contribution as % of gross salary||Total % of gross salary being contributed by all parties|
Salary for the purposes of calculating the required contributions will be capped at €80,000. However, people earning above that amount can still make additional contributions to the AE Scheme. The employer will not be required to match these additional contributions.
It is important that employers in Ireland are aware of the incoming AE requirement because failure by employers to implement it will result in administrative penalties in the first instance and ultimately the risk of prosecution as a criminal offence for the individual responsible within the organisation.
Occupational scheme and PRSA considerations
The Final Design Principles document does not specify criteria for how access to an existing occupational scheme or a PRSA will disapply the AE Scheme requirements. However, given that employers are required to contribute to the AE Scheme, it is unlikely that employees’ access to a PRSA or occupational scheme to which an employer does not contribute, or contributes less than the rates specified in the table above, will be sufficient for employers to be deemed exempt from the AE Scheme requirements in respect of those employees. Employers may wish to conduct an evaluation of their existing schemes to assess the likelihood that they will be required to set up a new scheme (or amend their existing scheme) in order to comply with the new AE requirements. One option that may be worth employers considering is a move to a master trust.