Ireland is set to introduce a new auto-enrollment pension scheme aimed at increasing retirement savings among workers. This scheme will begin enrolling employees in 2024, with contributions starting in January 2025. The auto-enrollment system will apply to employees aged 23 to 60 who earn over €20,000 annually and are not already in an occupational pension scheme. Auto-enrollment applies to all employers in Ireland, regardless of headcount.
Here are the key details of the new scheme:
1. Contribution Structure:
- Both employees and employers will start by contributing 1.5% of the employee’s salary, which will increase every three years by 1.5%, eventually reaching 6% by the tenth year.
- The state will also contribute an additional €1 for every €3 saved by the employee, capped at earnings of €80,000. The earnings cap is for all contributors not just the state.
- This means that for every €3 an employee contributes, the total contribution to their pension will be €7, considering employer and state contributions. There will be no facility initially for additional voluntary contributions (AVC), this may be introduced eventually.
2. Opt-Out and Re-enrollment:
- Employees will be automatically enrolled but can opt out after six months. If they do, they will be re-enrolled every two years but can opt out again if they choose.
- Employees who opt out will receive a refund of their contributions, but the employer’s and state’s contributions will remain in the pension pot.
3. Administration and Management:
- A Central Processing Authority (CPA) will manage the scheme, collecting, pooling, and distributing contributions to investment managers. This authority will also maintain an online portal for employees to track their savings.
- The scheme includes a default investment fund and three other fund options with varying risk levels.
4. Action for Employers:
- Employers will need to update their payroll systems and possibly revise employment contracts to comply with the new requirements. They are also responsible for ensuring that contributions are correctly managed and remitted.
- Employers who fail to comply with the new regulations may face penalties and potential prosecution through the Irish courts. This is now signed into law and becomes an employment right for Ireland based employees
This new system is expected to significantly boost the number of workers participating in pension schemes, with an estimated 750,000 new pension savers being created. The phased implementation over a decade is designed to help both employers and employees adjust to the new system gradually.
How can HSP assist with compliance under this scheme?
HSP can assist our clients with the new scheme by offering a range of specialized services to help businesses navigate and comply with the new regulations. Here are some strategies to consider:
1. Compliance and Regulatory Consulting:
Offer comprehensive consulting services to help businesses understand and comply with the new auto-enrollment requirements. This could include:
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- Regulatory Updates: Regular updates and briefings on legislative changes and compliance deadlines.
- Compliance Audits: Conduct audits to ensure businesses are fully compliant with the new regulations.
- Documentation Support: Assist in updating employment contracts, employee handbooks, and other relevant documents to reflect the new pension requirements.
2. Payroll and Systems Integration:
Help businesses integrate the new pension scheme into the HSP locally compliant payroll solution:
- System Setup: Assist in setting up payroll system to automatically handle pension contributions, including employer and state top-ups.
3. Employee Communication and Training:
Develop and implement strategies for communicating the new pension scheme to employees:
- Communication Plans: Create detailed communication plans and materials to ensure employees are well-informed about the auto-enrollment process and their options for opting in or out.
4. Customized Pension Schemes:
Offer general consulting on the process to set up customized pension schemes that may be more attractive for employee retention than the default state scheme:
- Scheme Design: Design and implement defined contribution pension schemes that can serve as an alternative to the state-mandated scheme.
- Benefit Comparison: Help companies compare the benefits of setting up their own pension schemes versus using the state system, focusing on aspects like tax advantages and flexibility (Contributions made by employers to occupational pension schemes are generally tax-deductible as a business expense. This means the company can reduce its taxable income by the amount contributed to employee pensions. It also allows for more control over investment choices and overall performance).
5. Financial Management and Forecasting:
Provide services to help businesses manage the financial aspects of the new pension contributions:
- Cost Analysis: Conduct analyses to forecast the financial impact of the new contributions on the business.
- Budget Planning: Assist in budgeting and financial planning to ensure businesses are prepared for the phased increase in contributions.
6. Outsourced Administration:
Offer outsourcing services to manage the administrative burden of the auto-enrollment process:
- Centralized Management: Handle the collection, pooling, and distribution of contributions through a centralized system.
- Ongoing Support: Provide ongoing administrative support to manage employee data, track contributions, and ensure compliance.
7. Consulting on Opt-Out and Re-Enrollment:
Provide specialized consulting on managing employee opt-out and re-enrollment processes:
- Opt-Out Strategies: Develop strategies to handle opt-out requests while ensuring compliance with re-enrollment regulations.
- Retention Incentives: Advise on incentives and communication strategies to encourage employees to remain enrolled in the pension scheme.
HSP can offer expert services to businesses expanding into Ireland and those who already have a presence, helping them navigate the complexities of the new pension auto-enrollment scheme while ensuring compliance and optimizing their employee benefits offerings.
