JOHN GERAGHTY, Business Development Consultant, CPAS, discusses how the government’s Auto-Enrolment Pension Scheme differs from other pension plans and what business owners need to be doing to prepare for contributions to the scheme starting in early 2025.
The government’s Auto-Enrolment Pension Scheme has been officially enacted into law, and contributions are anticipated to commence early in 2025. Employers must be well-informed about the essential details and requirements of auto-enrolment, as it may have implications for their existing pension arrangements and employees who are not enrolled in a pension scheme.
The National Automatic Enrolment Retirement Savings Authority (NAERSA), a newly established government entity, will be responsible for managing the scheme. Recently, the Department of Social Protection has chosen Tata Consultancy Services (TCS) to administer the pension auto-enrolment system. TCS is an India-based multinational company engaged in information technology services and consulting with a presence in Letterkenny.
To prepare for auto-enrolment, employers should develop an action plan well in advance of the commencement date. Conducting a gap analysis of their employees is critical to identify individuals who are currently not included in any pension scheme. If so, what is the plan for these employees?
Eligibility for the scheme encompasses employees aged between 23 and 60 years who earn over €20,000 per year unless they are already participants in another pension arrangement. Both employers and employees are expected to contribute to the scheme, beginning at a rate of 1.5% each, gradually increasing to 6% over a ten-year period.
Contributions are as follows:
Proposed Contributions
| Years | Employee | Employer | State | Total |
|---|---|---|---|---|
| 1 - 3 | 1.5% | 1.5% | 0.5% | 3.5% |
| 4-6 | 3% | 3% | 1% | 7% |
| 7-9 | 4.5% | 4.5% | 1.5% | 10.5% |
| 10+ | 6% | 6% | 2.0% | 14% |
*Employer contributions and the State top-up will be capped at a maximum €80,000 of an employee’s gross salary.
There are noteworthy distinctions between auto-enrolment and existing occupational pension schemes that employers ought to be aware of. For instance, auto-enrolment does not provide tax relief like traditional pension arrangements do. Instead, a state top-up equivalent to 25% tax relief is available. Employers running an auto-enrolment scheme alongside another occupational pension arrangement should familiarise themselves with the two different taxation systems that will be applicable to payroll.
Occupational pension schemes are more advantageous for pension scheme members paying 40% tax, while the auto-enrolment scheme may have a greater impact on the take-home pay of taxpayers on the 20% rate.
Additional voluntary contributions (AVCs), which allow members to enhance their retirement outcomes by contributing more to their pensions, are not currently possible under auto-enrolment. Moreover, auto-enrolment does not offer additional benefits such as life cover, sick pay, and income protection, which are valuable incentives for employers seeking to attract and retain key personnel.
The introduction of auto-enrolment will grant access to pension schemes and employer contributions to a generation that would otherwise solely rely on the state pension. As the only OECD country without a mandatory retirement savings system, Ireland is playing pensions catch-up with most of the developed world. Hundreds of thousands of Irish workers are set to benefit from Auto-Enrolment, and the Department of Social Protection estimates that around 800,000 workers will be enrolled into a new workplace scheme, which will make a real, meaningful difference to their income after retirement.
However, is this state-run scheme the right choice for your business – especially if you are already providing some employees with pension provision and additional benefits?
Employers should seize this opportunity to assess their needs and implement a solution that suits them best.
For further assistance with preparing for auto-enrolment, you can contact John Geraghty, Business Development Consultant at CPAS, via email at j.geraghty@cpas.ie or by direct dial 01 223 4942
About CPAS
CPAS manages the Construction Workers Pension Scheme (CWPS), the Construction Executive Retirement Savings (CERS), and provides additional financial support services through Milestone Advisory DAC.
For more details, contact Susan O’Mara via email susan@cpas.ie or phone 01 223 4949