The Government recently announced details of a new Auto Enrolment Retirement Savings Scheme which will apply to all employees who meet certain criteria. Unless they choose to opt-out, all employees aged 23 to 60 and earning at least €20,000 gross per annum who are not existing members of an employer-sponsored occupational pension scheme will be automatically enrolled in the scheme. Employees earning below €20,000 and/or aged under 23 or over 60 can opt-in to the new scheme if they wish.
How will Auto Enrolment work?
Employees will initially contribute 1.5% of gross earnings, rising by another 1.5% on three separate occasions until they reach a maximum of 6% in year 10 of the new regime (2034). The employee’s contributions will be matched by their employer with the State making an additional top-up contribution equivalent to 33% of the employee contributions. So, for every €3 an employee contributes to their retirement savings account, another €4 will be contributed by their employer and the State.
Impact on employers
From an administrative perspective, the Auto Enrolment scheme will be run by a Central Processing Authority regulated by the Pensions Authority so employers will not need to set up their own scheme or select a savings option for their employees. However, employers will need to make provisions in budgets for matching their employee contributions (subject to an income threshold of €80,000). They will also need to ensure that their payroll system can cope with the new regime. Similar to existing tax relief rules regarding contributions to occupational pension schemes, employer contributions under auto-enrolment will be deductible for corporation tax purposes.
The Government has indicated that the Auto Enrolment Retirement Savings Scheme will be set up by 2023 for employee enrolments in 2024. When preparing for the new regime, employers should take the opportunity to address any situations where an existing employee’s wages are based on ‘take home’ rather than ‘gross’ pay as these arrangements make budgeting difficult and can lead to significant additional costs for the employer. Further information on Auto Enrolment can be found on the Government website.