Why is the Auto-Enrolment Pension scheme being introduced in Ireland?
After two decades in the making, the Government has announced details of the proposed Auto-Enrolment Pension scheme that will take effect from January 2024. Ireland is reportedly the only OECD country that does not yet operate auto-enrolment or a similar system to promote pension savings.
The aim of auto-enrolment is to increase the number of employees in Ireland with access to pension cover and to address the pensions gap. The Government is said to be in great support of the scheme in an effort to bridge the pension gap as the gap will continue to grow due to the lack of sustainability with the current State pension as a result of increasing life expectancy and an ageing population.
What does the Auto-Enrolment Pension Scheme entail?
The automatic enrolment would see employers introduce a workplace pension scheme and automatically enrol their employees into the scheme. Employers would then be obliged to contribute a percentage of an employee’s salary to help fund their retirement.
Under the scheme, employees will be required to make certain minimum contributions to a pension scheme and employers will be obliged to match those contributions, which will then be topped up by the State. Employer and employee contributions will start at 1.5% in 2024 and will increase by 1.5% every three years until they eventually reach 6% by 2034. In other words, for every €3 contributed by the employee, a further €4 will be invested by the employer and the State combined. The auto-enrolment system will be introduced on a phased basis. Once the scheme is fully established, it is anticipated that an employee with an annual salary of €35,000 will accumulate savings of €293,000 over their working life, excluding investment returns.
What employees will be involved in the Scheme?
It is estimated that 750,000 employees in Ireland currently have no private pension at all. All employees not already in an occupational pension scheme, aged between 23 and 60 and earning over €20,000 across all of their employments, will be automatically enrolled in the scheme from January 2024 onwards.
Employees can opt out after six months, however, they will be automatically enrolled again every two years, and will have to wait in the scheme for six months each time before they can leave. Employees can also suspend their contributions if they need the money for other purposes, such as saving for a house deposit or the arrival of a new baby. Regardless, those employees will be put back into the scheme after two years.
Is the Auto-Enrolment Pension Scheme mandatory?
It is important to note that the scheme is not mandatory. However essentially ‘employees can check out any time they like, but they can never leave the scheme’.