Pension auto enrolment (AE) has long been talked about in Ireland. First proposed back in 2006, Social Protection Minister Heather Humphries stated (opens a new window) that AE is expected to be delivered in January 2025 when announcing the bill. The plan will have wide-ranging implications for employers and their staff.

Minister Humphries also outlined when speaking at the National Pension Summit that legislation for the proposed AE scheme is expected to be published in March 2024, the tender process for the pensions administrative service to run the AE system is well advanced and the procurement exercise for investment management services is at an advanced stage of development with the Minister stating that she will “sit in the Dail and Seanad day and night to get that Bill enacted as quickly as humanly possible.”

Further progress has since been made with the legislation having been approved by cabinet, and it will be brought before the Oireachtas after the Government return from their Easter break. The first contributions to the AE scheme are now expected to begin from 1 January 2025.

Following the publication of the proposed AE framework by Government in 2022, many stakeholders engaged in the consultation process to identify concerns, communicate feedback, and seek clarification on certain areas of the proposed framework.

Throughout the pensions industry, many continue to “poke holes” in the proposed AE framework, as it is far from perfect and has come in for certain criticism. However, the likelihood is that what is outlined in the legislation, once published, will not differ hugely to that contained in the proposed framework. Rather than poking holes, it’s time to acknowledge that AE is coming, and employers need to prepare accordingly.

Financial impact on employers

When contributing to a pension plan becomes a legal requirement, it will have a transformational effect on the Irish pensions landscape. An estimated 750,000 employees and their employers will commence pension plan contributions. Initially, contributions will start at 1.5% of an employee’s earnings which will need to be matched by the employer along with a 0.5% contribution from the State. From year 4, employee and employer contribution will increase to 3%, increasing further to 4.5% by year 7 and 6% by year 10. All employees’ earnings over €20,000 per year and aged between 23 and 60 will need to be automatically enrolled in a pension plan. Earnings up to a maximum of €80,000 qualify for the matched contribution.

A key feature of the system is that although participation is voluntary, employees cannot opt-out for the first 6 months. If after six months a worker wanted to opt-out they can, but they will be re-enrolled again after two years.

Key employer considerations

One of the most significant and obvious impacts that AE will have on employers is the cost of employer contributions. Businesses will need to budget for it, but there are many other key areas that employers will need to consider. Much will relate to what pension provision, if any, employers currently have in place for their employees and how this will compare to what is outlined under AE. Employers that do not currently provide pension provision for their employees will need to assess what pension structure will work best for their employees and deliver the optimal outcomes. For some that may be the AE plan or an occupational pension/personal retirement savings account (PRSA).

There is much to keep in mind for employers. Below we have summarised key considerations:

Do you currently have a pension scheme in place?

1. If the answer is no, you need to weigh up the benefits of introducing a company pension scheme or Personal Retirement Savings Account (PRSA) versus relying on the auto-enrolment system. No employer should just default into an auto enrolment solution without considering all options for pension provision for their employees.

2. If the answer is yes, you need to learn about any potential eligibility restrictions on the membership, if it’s mandatory or optional, and if there’s a waiting period before you can join the scheme which may need to change.

Other considerations include:

• The direct cost implications of including your employees in your pension scheme versus including them in the AE solution.

• Establish whether to include options for employees to join your pension plan or the AE solution.

• Multiple offerings might make more sense for some, as cohorts of employees might be financially disadvantaged by being in an AE solution or a group pension arrangement.

• Reviewing earnings for pension contributions may be necessary if you have employees with variable or seasonal earnings. These earnings can make up a sizeable portion of their income – if this is the case, there may be complications within your pension scheme in relation to minimum levels of contributions to be AE compliant.

• It will be important to review employment contracts and payroll capabilities.

• Communications – you will need to develop an employee communications plan for the upcoming changes.

• Death benefits are not provided under auto enrolment – if you want all your employees to have this benefit, you may need to set up a separate death benefit plan if they want to make this benefit available.

As is evident above, there is plenty for employers to consider. Perhaps most importantly, it is vital that you communicate AE to your employees in an easy-to-understand way. AE is being introduced by Government, but you will need to implement it and manage the communication with employees. Numerous recent polls and surveys highlight that many people are unaware of what AE is and how it will impact them. Guidance and advice for employers is hugely important to help them plan and prepare for the introduction of AE.

Despite this, AE should be seen as a positive for employees as it will lead to greater pension adequacy, better outcomes at retirement, and help bridge the pensions shortfall among private sector workers.

It is imperative that employers are AE ready and begin to plan for its introduction and work through the various considerations. How employers manage the communication of AE to their workforce will impact greatly on the success of AE and employee relations.

As outlined by Minister Humphries, “AE will, without doubt, represent the biggest reform of our pension system in the history of the State.” Therefore, it will be very difficult for employers to navigate through this huge reform, the complexities of AE, and to manage employee communication without seeking adequate advice and guidance to help them through the process.

The timeline for employers to act is narrowing. You should take steps now to ensure you are AE ready.

For more information, and to begin planning for the introduction of AE, please contact:

Alan Smith, Benefits Consultant

T: +353 (86) 2008729

E; alan.smith@lockton.com