Recent data from the Central Statistics Office (CSO) shows that just one in five of those with no occupational pension from their current employment are aware of the planned auto-enrolment retirement savings scheme. This is a little alarming as the new scheme is aiming at bridging the gap for this group. Over 33% of people in employment have no private pension plan and will face a large drop in income in retirement. Here is our quick guide on the main things that both employees and employers should understand about the scheme.
What is Pension Auto Enrolment (PAO)?
Auto-enrolment is a new system to try to encourage people to make adequate provision for their income at retirement. It will work by having employers automatically enrol their employees into a workplace pension scheme. The proposal announced in 2022 had auto-enrolment scheduled to go live from the first quarter of 2024. However, we are still awaiting the publication of the Automatic Enrolment Bill. The commencement date is currently now flagged for early 2025, according to the Department for Social Protections website.
Why is it being introduced?
It is aimed at those people who currently are not in a company pension scheme and to increase active participation of the private sector workforce in supplementary pension provision. That means that all employees not already contributing to an existing employer pension scheme and within certain age and earning parameters, will be required to automatically enrol in the new scheme (some exceptions apply).
Who is it the new scheme for?
All employees earning over €20,000 per year, aged between 23 and 60, and who aren't already in a pension scheme will automatically be enrolled into the scheme. Those outside the earnings and age brackets, and who aren’t already in a pension scheme, will not be auto enrolled, but they may choose to opt in if they wish.
What do employees have to do?
The scheme will do what it says on the tin. That is all employees earning over €20,000 per year, aged between 23 and 60, and who aren't already in a pension scheme will automatically be enrolled into the scheme. There may be alternative options available to them and it is strongly recommended to seek professional advice. However, when it comes to opting out then employees have several things to be aware of. These include that they must stay in the system for 6 months but can then opt out in months 7 and 8. In addition, employees who suspend their contributions will be automatically re-enrolled after two years, once they are still eligible for the scheme.
What do employers have to do?
Much of the management for the implementation of the new scheme falls to employers. It is advisable to get specific advice where there is already a group pension scheme in place. Group pension schemes tend to have an eligibility period, often mirroring a probationary period. Now on joining a company, an employee will be automatically enrolled into the new state scheme until such time as payroll detects an employer’s contribution into an alternative arrangement. There will be circumstances where an employee is auto enrolled and then sometime later is eligible for the existing company arrangement. In addition, many company arrangements are voluntary and it may be necessary to adjust this to ensure all employees can avail of an existing scheme.
The objective of auto-enrolment is to encourage people to make adequate provision for their income at retirement. What it doesn’t consider is the other options that are available and that might be more beneficial, particularly those who are higher rate taxpayers. It’s very important that both employees and employers seek advice so that everyone is aware of all of the options available to them.
We’re very happy to have a chat with you about what is right for you and your business, whether you have an existing scheme in place or not. Please do not hesitate to contact us at Financial Equality Services on 01 576 7513 or info@feservices.com to arrange a free consultation.
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