The new Auto Enrolment Pension scheme is aimed at low to middle earners helping them to save for a financially secure retirement. The State is due to roll this out in the later half of 2024. Although the administration of the state contributions is under active consideration it may be later than then 2024 before this scheme is actually up and running. Nevertheless SME should be aware of their obligations and plan ahead in their 2024 budgets and beyond.
What is Auto Enrolment?:
Currently, only 1 in 3 employers in the private sector have a supplementary retirement saving scheme. It is estimated that between 750,000 and 800,000 eligible employees will be automatically enrolled in the scheme. Auto Enrolment is a pension scheme designed to encourage workers to save for their retirement and to make it more straightforward for businesses to offer a pension in the workplace. It involves employees and employers paying in a set percentage of the employee’s gross income, with a top-up from State Funds.
Who is Eligible?
Workers who meet the following criteria will automatically be enrolled in a pension plan:
* Workers who are currently not part of a pension plan
* Who are aged 23 years and older
* Workers earning €20,000 or more per year will be automatically enrolled into the new workplace pension scheme.
Anyone earning below the income threshold or aged outside of the parameters will be able to opt-in to the system if they wish. Employees who are on probation, casual or working on a part-time basis will be assessed by a new Central Processing Authority (CPA) to determine eligibility. When employees reach their normal retirement age (linked to the State Pension Age which is currently 66) their funds along with investments returns will be available for drawdown. The new AR scheme is in addition to the current State Pension and will not replace it!
Employer/Employee Contributions:
Contributions from all parties will be phased in over 10 years – starting at 1.5% of gross income and reaching 6% of gross income in year 10.
As an employer you must match employee’s contributions, with the pension being topped up by the state, up to a maximum earnings threshold of €80,000. All eligible employees will automatically be enrolled in this scheme.
Opting In/Out:
Employees who have been automatically enrolled can choose to opt out or suspend their participation after six months.
Fund Choice: There will be 4 funds to choose from with different levels of risk/reward profiles to suit all employees. These are:
Fund 1 Conservative Risk Fund
Fund 2 Moderate Risk Fund
Fund 3 High Risk Fund
Fund 4 Lifestyle Cycle Fund (default fund)
Moving Jobs: The employee will have their own ‘pension pot’ which is linked to them and not to a specific employment. Their ‘pension pot’ will follow them when they change jobs. Employees will be able to view their own account online and see all their pension details.
Summary:
The new scheme is welcomed as it is hoped it will provide more equity and pension coverage for all employees in Ireland. It will increase costs for SME but it is hoped that it will help retain employees and increase loyalty. If SMEs do not already provide a pension, they need to be aware of their employees who meet the eligibility criteria.
If you are a SME and employ more than one employee, it applies to you!
There will be increased administration as your payroll department will need to take process enrolment, calculate and pay employee and employer contributions to the Central Processing Authority.
SMEs will be required to match members’ contributions up to an eventual maximum of 6% subject to an earnings threshold of €80,000. Employer contributions will be deductible for corporation tax purposes
If a SME fails to meet their auto-enrolment obligations they will be subject to penalties and possibly to prosecution.
