Pensions Auto-Enrolment

Auto-enrolment is a 2024 Government initiative which aims to increase pension savings for Employees by ensuring they are automatically enrolled into a pension scheme through their Employers. The aim of this initiative is to reduce peoples reliance on the State Pension when they reach retirement

It will be phased in gradually over a decade with employer and employer contributions increasing every three years until both contribution types reach 6% respectfully from year 10 onwards. The State will also top up contributions by €1 for every €3 saved by the employee, up to a maximum of €80,000 of earnings.

The scheme is voluntary for employees, and they will have the option of opting out after six months, but employers will not. Employees will automatically be re-enrolled every two years.

People earning more than €20,000 per year and who are aged between the 23-60 bracket who don’t already have a pension scheme will be automatically enrolled. People who fall outside those parameters can also opt in, as long as they don’t already have a pension scheme.  

PRSA Obligation for Employers

While Employers in Ireland are not obliged at this point in time to make a contribution to a Pension fund for an Employee, it is mandatory for the Employer to provide access to a Personal Retirement Savings Account (PRSA) through payroll.

The Company will enter into a contract with a PRSA provider and notify the employees that they have the ability to contribute to a PRSA and that the tax relief would be administered through payroll.

As Auto-Enrolment is coming down the line for Irish Employers, it’s important to consider this PRSA facilitation decision in the context of the upcoming mandatory auto-enrolment rules.

Types of Contributions

A Group Pension can accept 3 types of Contributions:

1. Employer Contributions: This is the amount that the Company will contribute to the company pension. These are generally made on a monthly basis as a percentage of the Employee’s salary

2. Employee Contributions are monthly %-based amounts paid into the Pension Scheme by the individual employee. Employee Contributions benefit from tax-relief at source, giving immediate tax relief of either 20% (for Standard Rate tax-payers) or 40% (Marginal Rate tax-payers)

3. Additional Voluntary Contributions (AVCs) are very similar to Employee contributions, but they are simply in additional to what the standard percentage employee contribution. AVCs also benefit from Tax Relief at course

An example of all 3 of these would be a Company that agrees to pay a pension contribution of 5% of an employee’s salary (Employer Contribution) on condition that the individual employee also contributes 5% of salary (Employee Contribution). If that Employee were aged between 40-49, he or she may also decide to contribute an additional 20% of salary as an AVC to the scheme, to get up to 25% of total salary (subject to an earnings ceiling of €115,000)

2-Year Vesting of Employer Contributions

Companies can opt to set up and impose a 2-Year Vesting period for Employer Contributions to Occupational Schemes.

This means that if the Employee leaves within 2 years of joining the Occupational Pension Scheme, the Employer is entitled to a refund of all Employer Contributions made.

The individual employee will also be afforded the opportunity to take back his / her Personal Contributions & AVCs made to the plan in that period also. They would be charged the Standard Rate of tax (currently 20%).

It is important for Employers to consider this 2-Year vesting Pension Vesting period when attracting and retaining staff.