The government has designed an auto-enrolment pension investment scheme for employees, which will take effect on 1st January 2025.
This scheme has been designed to encourage employees to save for their retirement and make it more straightforward for businesses to offer a workplace pension option.
Currently, only approximately 35% of employees in the private sector have a supplementary retirement saving scheme. This means that they will be relying on the state pension when they retire.
Employees who meet the following criteria will be auto-enrolled:
earning over €20,000 per year,
aged between 23 and 60
who aren’t already in a pension scheme
People earning less than €20,000 per year and who are aged outside the 23-60 bracket will be able to opt in, as long as they aren’t already in a pension scheme.
Contributions will be phased in so that everyone can get adapt to the new system without a steep change in income.
Employees will be able to leave the system or pause their contributions under certain circumstances, but will be automatically re-enrolled after two years if they are still eligible.
An independent body, the Central Processing Authority, will be set up to administer the scheme and look after participants’ best interests.
What auto-enrolment scheme means for employers
All of your employees meeting the eligibility criteria, who do not already have a pension scheme will be enrolled into the auto-enrolment pension.
You will need to ensure that your payroll can take instruction for enrolment, calculate and pay employee and employer contributions to the Central Processing Authority.
You will be required to match members’ contributions up to an eventual maximum of 6% subject to an earnings threshold of €80,000
Employer contributions will be deductible for corporation tax purposes.
If you fail to meet your auto-enrolment obligations as an employer, you will be subject to penalties and possibly to prosecution.
How much it will cost
employer contributions will start at 1.5% of gross pay
in year 4 they will increase to 3%
in year 7 they will increase to 4.5%
in year 10 they will increase to the maximum rate of 6%
contributions will be fixed and employees or employers won’t be able to contribute less or more than the set rate
Benefits for employers
not having to pay to set up a company pension scheme
not having to administer a company pension scheme
ensuring that employees are looked after
increased competitiveness and attractiveness as an employer
employer contributions will be deductible for corporation tax purposes
Why employers are being asked to contribute
from a market/consumer demand perspective, ESRI research indicates that auto-enrolment will be good for the economy in the long-term, as retired people will have more money than they would have otherwise. This will help to sustain consumer demand and business revenues
the employer contributions reflect these benefits and recognise that employers benefit from employees having retirement income security and a greater sense of wellbeing
pension provision is not a matter that can be left to employees or the state alone. It is an important element of a tri-partite social contract in a developed economy, recognising that making provision for retirement income is a cost that should be shared between all parties that benefit
The Government of Ireland website, gov.ie, has a useful auto-enrolment guide for employers, which you can view here
We will keep you up to date on any new details about these requirements as the information becomes available. In the meantime, if you would like to speak to once of our payroll specialists please contract us at info@fdw.ie with your contact details and we can arrange a consultation.
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For more information visit Revenue.ie
Source: Gov.ie