What you should know about Auto-Enrolment pensions in Ireland
The Government plans to introduce auto-enrolment in Ireland by the end of 2023 with the first payments going through the new system by 2024. It has been in the works for almost two decades and is closer to realisation than ever before. The overall aim of auto-enrolment is to “build a culture of saving for retirement in Ireland”, according to Minister for Social Protection, Heather Humphreys.
WHAT IS AUTO-ENROLMENT?
Auto-enrolment is a pension savings plan rolled out by the government. It aims to improve Irish workers’ retirement outcomes.
Currently, there are over 750,000 workers in Ireland without pension savings. This means they may only have the State Pension, (currently €265 per week), to retire on – meaning a huge drop in their living standards when they retire.
HOW DOES AUTO-ENROLMENT WORK?
Through auto-enrolment, employers must contribute to a workers’ pension plan. Employees will have access to a workplace pension plan which is co-funded by their employer and the State. Workers who are not currently part of a pension plan, aged 23 years and older and earn €20,000 or more per year will be automatically enrolled into the new workplace pension plan.
A key feature of the system is that although participation is voluntary, it operates on an ‘opt-out’ rather than an ‘opt-in’ basis. If after six months a worker wanted to opt-out, they can but they will be re-enrolled again after two years. The aim is to encourage workers to recognise the importance of saving for retirement through a pension plan.
EXAMPLE OF SAVINGS THROUGH AUTO-ENROLMENT:
For every €3 saved, the Government will put in €1, up to a limit. So, if a worker were to save €100 a month, the Government will add another €33. On top of this, an employer will also have to gradually match any contributions made by up to 6% of salary. This will start off at just 1.5% but gradually increase to 6% by year 10.
WHAT IF I’M ALREADY PART OF A WORKPLACE/ COMPANY PENSION PLAN?
If you are saving into a workplace/company pension plan, nothing will change for you when auto-enrolment comes into play. Previously, the onus was on employees to join a pension plan but with auto-enrolment, the onus will now move to employers to ensure they offer a workplace pension to all employees who are eligible to join.
A workplace/company pension is set up by an employer. Employees usually pay in a set portion of their salary, and this can be increased at any stage. Employers usually make contributions on behalf of their employees to top up their pension savings. This is an advantage which makes workplace/company pensions appealing, and employees also benefit from the generous tax relief available on employee contributions.
If you have questions about your own company pension, we’d suggest contacting your company’s HR as each scheme has different rules. However, if you’re interested in getting started with a pension, book an appointment with us to speak to one of our financial advisors.
WHAT DOES IT MEAN FOR EMPLOYERS?
Most large employers in Ireland have existing pension plans in place so may feel they will not be impacted by these changes. But often membership of these plans is voluntary, meaning that not all employees have become members of the plan. Therefore, employers will need to decide whether to open their existing plans up to all employees to auto-enrol all non-members to their existing plan or to instead allow for the auto-enrolment of non-members to the new State auto-enrolment system.
Smaller employers will also need to decide if they should enter the State auto-enrolment system or obtain a flexible traditional occupational scheme which affords generous tax relief.
If you are an employer who wants to learn more about getting auto-enrolment ready, get in touch by emailing us on info@oaktreefinancial.ie
DO OTHER COUNTRIES OFFER AUTO-ENROLMENT?
Ireland is one of the only Organisation for Economic Cooperation and Development (OECD) countries that doesn’t yet operate auto-enrolment or a similar system to promote pension savings.
Auto-enrolment has delivered fantastic results in increasing pension coverage in countries like the UK and New Zealand. While we welcome its introduction as a positive move towards cultural change which will help an extra 750,000 workers to save for retirement, we are concerned by the departure from the Government’s proposals of 2018, (the Pensions Strawman). We believe the latest direction will not be as positive an outcome for savers and employers and analysis of the latest proposals by international experts confirm our concerns. We have provided our views to the government on how it can be established most effectively and believe it is a once-in-a-generation opportunity to get this right.
Talk to us about taking control of your pension. Call 025-30588 or visit oaktreefinancial.ie