FIRST out of the stalls to publish a white paper on auto-enrolment (compulsory pension system) in Ireland was the late Minister for Social Protection, Seamus Brennan, in 2007. A lot of discussion on its merits has taken place since then. Its introduction is going to happen in early 2025 according to recent media comments by our current Minister Heather Humphreys. This seems to me to be an overly optimistic time frame.

What is auto-enrolment?

Auto-enrolment is a new retirement savings scheme for employees. It will apply to those aged 23-60 years with earnings of €20,000-€80,000 per annum. With the introduction of auto-enrolment, employers will be compelled to make a pension contribution for their employees who currently are not funding for their retirement years. It does not apply to the self-employed.

Private sector

The Government’s aim here is to increase pension coverage, particularly among that cohort of employees who typically retire completely reliant on just the state pension. Pension coverage in the private sector in Ireland is extremely low in comparison to other EU countries. It is targeted at the circa 800,000 PAYE employees who have not made any pension provision. Circa 200,000 of these employees are on the higher income tax rate of 40%.

Interestingly, Australia’s auto-enrolment scheme has been in place since the 1990s. It has been so successful in drawing people into the pension arena that Australia now has the fifth largest pension market in the world! Across the Irish sea, Britian implemented auto-enrolment in 2012 and this has increased pension participation significantly among British workers.

In years one to three, following its introduction, the employee will pay 1.5% of gross salary with the employer matching this 1.5%. A Government bonus of 0.5% will apply for the first three years as well, so the total % contribution = 3.5%. Employee and employer pension contributions and the Government bonus will increase incrementally from year four onwards. From year 10 onwards, this employee contribution rises to 6% with a matching employer contribution of 6% and a top-up Government bonus of 2% which in total equals 14% total contribution. The employee pension contribution will be deducted from gross salary through the employer’s payroll package.

What do employers and HR departments need to do in advance of auto-enrolment?

  • Employers need to start budgeting as this will involve an extra cost of doing business going forward.
  • Educate and seek information on auto-enrolment and any better alternatives.
  • Scope the current pension coverage in your workplace. What current occupational pension schemes/group pension schemes are in force and who are the members and non members?
  • Start the process of communicating with staff on pension planning sooner rather than later!

    • The introduction of auto-enrolment is to be warmly welcomed in this country. However, a one size fits all approach does not suit all employees when it comes to retirement planning. It is crucial that employers seek professional advice from a suitability qualified financial advisor to review their circumstances and needs. This prudent approach will assist in establishing what type of pension scheme - employer sponsored or auto-enrolment best suits.

    If you require any professional financial advice in advance of the introduction of auto-enrolment, please contact Niall Rooney - financial planning manager CityLife Galway.

    niall@citylifegalway.com or call 091 520608.