What Irish Employers should know about Auto Enrolment
If you’re reading this, you’ve probably heard the words ‘Auto Enrolment’. You probably also know it’s set to be introduced this September. You may even be starting to think about how you can prepare for its impact.
Auto Enrolment is among the most significant shifts in the Irish pension landscape in the history of the state. For the first time, employers will be legally required to contribute to their employees’ pensions, bringing 750,000 private-sector workers into retirement savings.
This piece will cover why it’s being introduced, what it means for your business, and whether you should consider alternatives like setting up an Occupational Pension for your employees.
It is only a whistle stop tour, so for a full treatment check out our Ultimate Guide.
Why is it Being Introduced?
The introduction of Auto Enrolment is driven by a pressing issue: too many workers in Ireland do not have a pension beyond the State Pension. According to government estimates, around 32% of private-sector employees currently have no retirement savings outside of state provisions.
With life expectancy increasing, there are fewer workers supporting each retiree through taxation. The government has, accordingly, taken steps to ensure long-term financial security for its people. Auto Enrolment is designed to close this gap by automatically enrolling eligible employees into a pension scheme, with contributions from employees, employers, and the State.
What is it exactly & who will be enrolled?
Under Auto Enrolment, employees will be automatically enrolled in a new retirement savings scheme if they:
Are aged 23 to 60
Earn €20,000 or more annually
Do not already have an Occupational Pension with employer contributions
Employers and employees will both start by contributing 1.5% of the employee’s salary, rising every three years until it reaches 6% in 2034. The State will also contribute a top-up of 33% of the employee’s contribution. Contributions will apply to salaries up to €80,000.
Employees must remain enrolled for six months before they can opt out. However, those who opt out will be automatically re-enrolled every two years.
Limitations and Alternatives
It goes without saying that Auto Enrolment is a positive change with a worthy goal. But any initiative with such a broad scope is bound to have limitations for certain companies, and it’s worth considering whether it’s the right fit for yours.
The primary limitation is flexibility - for both employers and employees. Under Auto Enrolment, employers must contribute a minimum of 1.5% of salary towards their employees’ pensions - which will increase to 6% over the next decade. There’s also no ability for employees to increase their savings beyond the mandated contribution through Additional Voluntary Contributions (AVCs) and they’ll be unable to access their pension until age 66.
If these considerations are important to you, setting up an Occupational Pension is a promising alternative. If you contribute to a scheme on your employees’ behalf, and they have access to the scheme from the first day of employment, then they will be exempt from Auto Enrolment.
This gives you flexibility as to how much you want to contribute, starting at 1%, and employees have the ability to contribute more should they wish to increase their savings - which they’ll be able to access from 50 years of age. You’ll also have a greater say in your employees’ benefits experience - rather than defaulting to the Government’s approach.
Conclusion
There’s 6 months left before roll-out, and guidance from the government is to start preparing now to ensure compliance.
At Kota, we’re helping hundreds of Irish businesses of all shapes and sizes to explore their options and approach Auto Enrolment with confidence.
Drop by our booth at Talent Summit to get the ball rolling for your business and ensure you’re prepared.
Kota.io is the easiest way to run employee benefits and is the solution of choice for forward-thinking companies like Tines, Remote.com, Zoe Health, Unmind and Space NK.
