Pensions Auto-Enrolment
Auto-enrolment is a Government initiative which is set to take effect in 2024 and aims to increase pension savings for Employees by ensuring they are automatically enrolled into a pension scheme through their Employers. It will provide people with additional savings in retirement, whereby they won’t just be relying on the State Pension.
How it works
The introduction of auto-enrolment will be very gradually phased in over a decade, with both employer and employee contributions starting at 1.5%, and increasing every three years by 1.5% until they eventually reach 6% by Year 10 (2034). 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. This is in addition to the €3 that will also be contributed by the employer.
This steady phasing allows time for both employers and employees to adjust to the new system.
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.
A new unit will be established called the Central Processing Authority (CPA) which will administer the pension scheme.
Who is eligible for auto-enrolment?
People earning more than €20,000 per year and who are aged between 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.
What it means for Employers
Employers will need to ensure your payroll can take instruction for enrolment, calculate and pay employee and employer contributions to the CPA. You will be required to match members’ contributions and if you fail to meet your obligations as an Employer you will be subject to penalties.
Auto-enrolment vs Other Pension Options
Whilst the auto-enrolment scheme is a great initiative to get people into a pension scheme, you should should seek the assistance of Financial Advisor prior to determine whether this is the best pension option available to you, as there are a few limitations to this scheme:
It doesn’t provide the flexibility to scheme members in terms of contribution levels, investment choices or transfers
Lack of timing flexibility when accessing retirement savings
Tax incentives will differ between the government run system and existing pension schemes, therefore higher band tax payers would be financially better off under their existing occupational schemes.
Author: Zarah McDonnell
Zarah McDonnell is a Qualified Financial Advisor with Compass Private Wealth.
Disclaimer: The above is generic in nature and does not constitute financial advice.