Auto-Enrolment in Ireland: An Employer Guide
What is auto-enrolment?
November 2024 – Auto-enrolment is a new occupational pensions regime that will introduce mandatory retirement savings requirements for the first time in Ireland. It is set to be introduced from 30 September 2025.
The aim of auto-enrolment is to substantially increase the number of employees who are currently saving for their retirement. The Government has estimated that approximately 800,000 new pension savers will be created.
Auto-enrolment will have significant implications for employers. For many, it will present a major compliance and operational challenge and give rise to material additional business costs.
It is vital that all employers understand the extent to which auto-enrolment might impact them and the immediate and longer-term implications for their business and employees.
How will auto-enrolment work?
A summary of the key features of the new regime are below:
- Auto-enrolment will affect all employees aged between 23 and 60 and who earn more than €20,000 per annum across all employments.
- All employees who meet this critera will be automatically enrolled into a new, State-run, retirement savings system.
- However, employees will be exempt from being automatically enrolled if they (or the employer on their behalf) are paying contributions into a qualifying occupational pension plan, Personal Retirement Savings Account, trust retirement annuity contract or Pan European Pension Plan.
- Auto-enrolment will not apply to the self-employed.
- The new central retirement savings system will be known as "My Future Fund" (MFF). It will be overseen by a newly established supervisory authority: the National Automatic Enrolment Retirement Savings Authority (NAERSA).
- MFF will exist in parallel with the current occupational pensions regime.
- All employees automatically enrolled into MFF will be subject to mandatory contribution rates, which employers will be required to match. However, employees will be able to opt out at certain points.
- For the first three years, mandatory contribution rates for employers and employees in MFF will be 1.5% of all gross earnings up to a cap of €80,000. Rates will increase by 1.5% every three years, reaching a maximum of 6% by year 10.
- In lieu of tax relief on employee contributions, the State will pay a top-up into MFF based on 0.5% of gross earnings and equivalent to 25% tax relief (again, increasing on a phased basis over the first 10 years).
- There will be no changes to the existing system of tax reliefs for occupational pension plans.
- Employees and employers cannot contribute more or less than the prescribed rates.
- Pension plans will eventually be subject to auto-enrolment “minimum standards,” which will be introduced no later than year 7 after commencement. Until then, employers can continue to decide the plan membership terms for their employees, including the rates at which contributions will be payable. As long as a contribution is paid into the plan (of any amount), the employee is exempt from auto-enrolment into MFF.
- There is no provision in the auto-enrolment legislation for employers to automatically enroll employees into their own pension plans or PRSAs. Under current laws, employees must give express consent to the deduction of pension contributions from their earnings. Employees who do not consent will be automatically enrolled into MFF, unless the employer pays a contribution to the plan on their behalf.
For this reason, for any employer who wishes to use their own pension plan for auto-enrolment purposes, the employee engagement process will be critical.
When will auto-enrolment start?
A commencement date of January 2025 was first proposed after the Automatic Enrolment Retirement Savings System Act 2024 was passed in July 2024. The Government recently announced a delay in the rollout of the auto-enrolment pension system, moving the launch date to 30 September 2025.
Work continues at pace to establish the infrastructure needed for MFF and NAERSA in time for the launch. While an administrator has now been appointed, there are a number of key elements that are outstanding. We expect to see accelerated progress over the next few months.
What should employers do now?
All employers need to quickly understand what auto-enrolment will mean for them and their employees. In short, retirement saving for employees will become mandatory, and employers will need to decide how they want to provide retirement benefits to employees.
Our analysis shows that most employers who already provide pension plans or PRSAs to employees, want to continue to use these and avoid the new central retirement savings system where possible. But to do this, employees (or employers on their behalf) need to be contributing to the pension plan prior to September 2025. If they are not, employees within the scope of the auto-enrolment requirements will be automatically enrolled into MFF.
For all employers, the challenge is clear: planning and preparation must start now to maximise the time available prior to commencement. Despite appearances, auto-enrolment is not straightforward and will need to be fully understood to minimise complications. Business, employee, and pension plan impacts need to be considered; options assessed and strategic decisions made in sufficient time before auto-enrolment commences.
Engagement with employees is going to be vital to explain the approach their employer is taking and what employees need to do next.
Auto-enrolment: It's time for employers to prepare
What key questions should employers consider?
The new central auto-enrolment retirement savings system, to be known as “My Future Fund” (MFF), will be run by a new National automatic-enrolment Retirement Savings Authority (NAERSA).
NAERSA will run all facets of MFF and will also liaise with employers and payroll service providers.
Once auto-enrolment commences, NAERSA will run employee eligibility assessments. If an employee’s remuneration exceeds the relevant threshold during a pay reference period, the employee will be deemed to be within scope and NAERSA will issue an “Auto-enrolment payroll notification” (APN) to the employer or payroll provider. (This is similar to the existing Revenue Payroll Notification process where employers are notified to ensure the correct tax information is being applied to employees’ pay.)
The APN will confirm the rate at which contributions must be deducted from the employee’s pay. At that point, employers must either ensure that the relevant contributions are deducted and made to NAERSA with respect to the relevant period or instead ensure that contributions are paid either by or in respect of the employee to the employer’s pension plan.
Mercer’s view is that where an employer currently provides an occupational pension plan, this will likely be for most employers and many employees, a better total retirement benefits solution than the My Future Fund (MFF)
However, employers will not be able to simply enrol their affected employees into their own pension plan and deduct employee contributions – they need the consent of the employee. If the employee does not consent, they will be automatically enrolled into MFF. This presents a real conundrum for employers who want to avoid the administrative complexity of having to operate two parallel retirement benefits arrangements for employees, not to mention the potential confusion this could create for employees.
This places an even greater emphasis on the importance of an effective employee engagement process, particularly given that they will be dealing with individuals who – in most cases – will never have saved for retirement previously and know little or nothing about retirement benefit arrangements.
This is a key consideration, and many prudent employers are already undertaking preliminary cost analyses. There may be initial costs to address relating to implementing auto-enrolment requirements. These will need to be considered as part of budgeting for its commencement.
However, the main immediate and ongoing cost consideration relates to the payment of employer contributions in respect of all affected current and future employees. This will be the case irrespective of the vehicle that is chosen to meet auto-enrolment requirements.
Employers will also need to understand how contribution costs will increase over time. Where employees join MFF, employer and employee contribution rates will be lower initially but will increase on a phased basis over the first 10 years of the regime. For the first three years, the rate payable will be 1.5% of gross earnings up to €80,000. This rate then rises to 3% in year four of the new regime, 4.5% in year seven and 6% in year 10.
Contribution costs applicable where employees join the pension plan will depend on the rates of contribution that the employer determines.
When auto-enrolment commences, only employees who are saving in an occupational pension plan will be exempt from being automatically enrolled into MFF. NAERSA will check to see if active contributions are going into a pension plan (or PRSA) for or on behalf of the employee.
In the early years of auto-enrolment, where the employee is saving into an occupational pension plan, there will be no minimum contribution obligation on either the employee or the employer. Employers will – initially at least – be able to determine what rates will be payable.
However, by no later than year seven after auto-enrolment commences, the Government will introduce mandatory minimum standards that occupational pension plans must meet. While we do not yet know what these minimum standards will be, we understand that a core principle will be that employees in pension plans cannot be any worse off in retirement savings terms than they would have been in the central auto-enrolment system. This will certainly mean that pension plans will have to at least ensure equivalent contribution rate structures are in place. The minimum standards may also extend to other elements of the auto-enrolment design.
For the time being, the Government has said that it is focused on establishing the new regime and setting up MFF. The minimum standards will, therefore, not be legislated for in this initial phase but will be introduced later.
Employers will need to ensure that the approach they have decided to take, as well as the merits of joining the pension plan can be clearly outlined. Ultimately, the employee’s agreement to join and contribute to the plan will need to be obtained.
Employers that do not currently provide an occupational pension plan will need to carefully consider which approach will suit them and their employees the best.
Employers who have smaller workforces, or who employ staff on lower incomes and/or typically for shorter periods, may find MFF a more suitable option. However, there are occupational pension plan products available in the market (such as master trusts) that could provide additional options and more flexibility than what is available under the central system at a broadly comparable cost.