Automatic Enrolment Retirement (AE) Savings System
A New ERA for Workplace Pensions?
The recent news that Government has approved details of the new pension auto-enrolment scheme well ahead of its expected introduction in 2024 may catch some employers and workers by surprise, but is likely to herald a new era for workplace pensions.
The General Scheme of the Automatic Enrolment (AE) Retirement Savings System Bill is sponsored by Minister for Social Protection Heather Humphreys and the heads of a bill will, in early 2023, go before the Oireachtas Committee on Social Protection for Pre-Legislative Scrutiny ahead of its expected introduction in early 2024.
At the end of March 2022, Minster Humphries announced the intention to legislate for this auto enrolment system. This has been mooted for some years but has been substantially delayed due to consultations and design complications. In the announcement this week, Minister Humphries has accepted there is still much to be done, with legislation required to set up the system on a statutory footing. A Central Processing Authority will also be needed to operate the system, and a communications campaign to ensure people understand it.
Some of the key design features include the following:
Participation will be voluntary - workers will have the ability to opt-out.
Eligible employees will be automatically enrolled/ ‘opted-in’ but will have the choice after six months participation to opt-out or suspend participation. They will be automatically re-enrolled after two years, after which they may opt-out or suspend again after a further six-months mandatory participation.
The scheme includes matching employer contributions to those contributions made by employees up to a maximum of €80,000[1] of earnings.
The employer’s contributions will match those of the employee and the State will provide a top-up of €1 for every €3 saved by the worker. This means that for every €3 saved by the employee, a further €4 will be invested by the employer and the State combined. Or for every €3 saved by a worker, a further €4 will be credited to their pension savings account or e.g. for every €1 saved by an employee their savings account will be credited with €2.33.
Employees will have a range of retirement savings funds to choose from with a number having differing risk/return profiles. In addition, a default fund will be provided and people who do not express a preference for any fund will be enrolled into the default fund.
Employers will not have to invest in the establishment or procurement of an occupational scheme for their own business. They will simply be required to facilitate payroll deductions.
People moving between jobs will not have to change pension scheme or join a new scheme. They will remain members of the Auto Enrolment scheme on a ‘pot-follows’ the member’ basis. In addition, people with multiple employments will have their pension savings consolidated into one ‘pensions-pot’.
Drawdown will be aligned with the State Pension age.
Phased Implementation
Under the proposal, 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. On commencement, some 750,000 workers will initially be enrolled into the scheme.
Assuming the system is set up by 2023 for employee enrolments in 2024, the introduction of Auto Enrolment will be phased in over a decade, with both employer and employee contributions starting at 1.5%, and increasing every three years by 1.5% until they eventually reach 6% by Year 10 (2034). This is to allow time for both employers and employees to adjust to the new system.
Employers remain concerned at the growing volume of employment regulations recently introduced or being considered by Government. These include the increase in the national minimum wage, the proposed introduction of a national living wage, the passing of the recent statutory sick pay and gender pay information legislation, the introduction of a code of practice on the right to disconnect, the changes to parental leave and benefits legislation, and this proposed introduction of pensions auto enrolment (AE) amongst others. These will all add to average labour costs at a time of peak uncertainty.
Once the enabling draft legislation is published, we will advise employers further of any likely employment relations (ER) issues arising.
Stratis is concerned that the successful implementation of AE will rely heavily on the willingness of employers and workers to make the necessary contributions at a time when by 2024, it is hoped that the ‘cost of living’ crisis and surge in inflation, which is currently leading to pressure on pay costs, will have eased.
If you would like to talk to us about any of the above issues, please get in touch with me at brendan.mcginty@stratis.ie or any one of our Partners.
Brendan McGinty | Managing Partner
Stratis Consulting
‘Strategic Employment Relations’
T: +353 (0) 1 2166302
M: +353 (0) 87 2433038
W: www.stratis.ie Twitter: @Stratisconsult LinkedIn: Follow us here
Disclaimer: The information in this article is for general guidance only and does not constitute legal or specific case advice. The answers to specific situations will vary depending on the circumstances of each case. This is not a substitute for specific professional advice relevant to individual circumstances facing your business.
[1] It is understood that this figure is based on twice the CSO average earnings data (Q4, 2020) and is to be updated 5 years following the commencement of enrolments in 2024.
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