First mentioned over 20 years ago as the solution to our ageing population with no private pension provision other than state supports, auto-enrolment is ‘fast’ approaching.
Written by Colm Moore, Moore Wealth Management
Current estimates from the CSO state that only 35% of the population have a private pension and this government has decided they will be the ones to address the issue which deserves praise. However heaping another cost on small businesses at the moment is unlikely to be perceived as business-friendly with us a year away from an election.
Who Will Run This ?
A body known as An tÚdarás Náisiúnta um Uathrollú Coigiltis Scoir (the “Authority”) will be established to run the autoenrolment scheme.
Who is Eligible ?
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 PRSA or qualifying trust RAC with an employer making contributions.
What Employment is Exempt?
Employment, in which the employer already makes contributions in respect of the employment of the employee at that time, to a qualifying occupational pension scheme, qualifying PRSA or qualifying trust RAC. The Authority, in consultation with the Pensions Authority, shall draw up standards that these pension products must meet in order to exempt employees contributing to these schemes. These standards have yet to be published.
Opt In or 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 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 of notice of enrolment, and there will be opt out windows after years 1 – 3 , 4 – 6 and 7 – 9.
Persons will be exempt from reenrolment if they, have reached pensionable age or they are contributing to a pension that meets the yet to be published standards set out by the Authority.
Cost
Both the employer and employee will make matching contributions and the state will put in one third of the employee contribution. The eagle-eyed among you will note that this is less than the tax relief they currently give on employee contributions for those in the 40% tax bracket.
Fund Choices
This will be a simple choice of 4 funds with increasing risk appetite. Unfortunately many here will end up in the wrong fund choice due to the lack of an advice process to accompany AE. Anyone with 7 to 10 years to retirement should be in 100% equities for the best return but this will not happen.
What happens if I change jobs after being enrolled?
If you change jobs after being automatically enrolled, you won’t need to change pension or join a new scheme. You will remain a member of the auto-enrolment scheme on a ‘pot-follows-themember’ basis. You won’t have to do anything, as the new National Automatic Enrolment Retirement Savings Authority will manage the change.
What if an employer does not partake?
If an employer does not join and contribute they will be subject to penalties and possibly to prosecution. If they don’t make contributions on an employees behalf, they may be fined and have to make repayments with interest.
What do employers need to do?
Supposedly not a lot apart from put your hand in your pocket. The Authority advise they are working to ensure that autoenrolment is as easy for employers as possible. This means using existing processes that you’re familiar with, like payroll software. You’ll have to make sure that your payroll software is up to date at launch time and keep an eye out for notifications. There will be more information and guides available for employers closer to go-live.
Can Employers claim tax-relief on the contributions?
Yes. If you are paying corporation tax, you will be able to claim tax relief on the employer contribution. You will not be able to claim relief on the employee contribution.
Do owner directors on payroll get auto enrolled or are they regarded as self-employed?
The simple answer to this is that it depends on the PRSI class that you are contributing through as an owner director. If you pay PRSI as an employee and meet the eligibility criteria, then you will be enrolled. But if you are registered as self-employed then you will not be eligible.
Will there be additional employer returns to be made by employers or will all the pension deduction information be processed through existing Revenue PAYE returns?
As an employer you will need to make a separate return through payroll directly to the central body administering the scheme. Information on how this process will work will be made available to employers closer to go-live. The calculations on contributions will be made through your existing payroll software.
What should employers do now?
Firstly and most importantly for employers, you need to budget for the introduction of AE late this year and in the years going forward.
If you operate a pension scheme in your business already, but not all of your employees are enrolled, they could likely be enrolled in AE. This means that you could have two schemes operating side by side for your employees.
It also means that if there is a waiting period for your pension scheme, employees could be enrolled in AE during this time. If an employee is enrolled in AE and subsequently wants to join the other scheme, they will be able to do so at any time.
Our View
Despite the Automatic Enrolment Retirement Savings System Bill 2024 being published on the 5th April 2024 there is a consensus that there is too much to do to have this in place in 2024 with 2025 seen as a more realistic target. There is a lot to be done including appointment of fund managers, selection of the processing database and to my mind the most important part is the education piece. There is not a high level of financial literacy in Ireland and this will lead to confusion and mistakes being made. The fact that no advice is received by those enrolled is concerning and will have an impact on participation.
Other concerns would be no provisions for females who typically have more time out of work for childbirth and care reasons to catch up on missed contributions along with no ability to make an additional contribution above the initial 1.5% if the employee wished.
The AE system is needed but the government has a lot of work to do to get buy-in from employers and employees. As an employer putting in place a scheme that has the same cost to you as an employer with better fund options along with retirement options could be a good move at this point as part of a proactive employee hiring and retention policy.
