What is Auto-Enrolment?
Auto-enrolment is a pension savings scheme where both employers and employees are required to make contributions to a pension fund, with an additional top-up provided by the Government. As the name suggests, all eligible workers in Ireland will automatically be enrolled into the scheme unless they opt out.
Currently, around two-thirds of workers in Ireland do not have any pension savings, meaning many may have to rely solely on the state pension when they retire. The state pension currently provides less than €15,000 per year (€277.30 per week), which may not be sufficient for most people's living standards in retirement.
How Auto-Enrolment Will Work
Workers aged between 23 and 60, earning more than €20,000 per year, who are not already part of a workplace pension scheme will be automatically enrolled. While participation is voluntary, the scheme works on an “opt-out” basis. Workers can opt-out after six months but will be re-enrolled every two years if they do not have another pension scheme in place.
Contribution Rates
In the first three years, employees will contribute 1.5% of their salary, with employers required to match this amount. The Government will also add a 0.5% contribution.
Contributions will increase every three years until they reach 6% from both the employee and employer, with a 2% Government top-up.
Employers and Additional Costs
Employers should be aware that the auto-enrolment scheme introduces new financial responsibilities. They will be required to match employee contributions, and non-compliance could lead to fines or even prosecution. As contribution rates rise over time, employers will need to factor these increasing costs into their budgeting and employee compensation planning.
For smaller businesses, the financial burden of matching employee contributions, along with the administrative demands of managing a pension scheme, could have a notable impact on budgets. Proactive planning for these expenses will help ensure a smooth transition when the scheme takes effect in 2025.
A Positive Step for Retirement Planning
Despite the delay, the auto-enrolment scheme remains a critical step toward fostering a culture of retirement saving in Ireland. By ensuring workers have access to both their own pension and the state pension, it will lead to better financial security in retirement.
By planning ahead, employers can not only comply with the new legislation but also contribute to the long-term financial well-being of their workforce.