In March 2022 the Minister for Social Protection introduced to government the final design principles for a proposed pension auto-enrolment retirement savings system for Ireland.

The objective of the proposed scheme is to ensure that every worker will have access to a workplace pension to supplement the basic State Pension.

The proposal, scheduled to go live from the first quarter of 2024, will mean all employees not already contributing to an existing employer pension scheme, aged between 23 and 60, and earning €20,000 or more across all employments, will be required to automatically enroll in the new scheme.

The proposed design, which is still subject to specific draft legislation to be passed by the Dail, envisages matching contributions from the employers and employees, with a 33% uplift of the employee contribution from the state in lieu of income tax relief.

The initial contribution proposed is 1.5% by both employee and employer and a 0.5% state contribution, totaling 3.5% of an employee’s salary, in year one. Contribution requirements will increase every three years by 1.5% for employer and employee, reaching a total contribution of 14% by year 10, made up of 6% each for employers and employees and 2% from the State.

These contributions will apply to earnings up to €80,000.

While the proposed scheme is voluntary, the approach is opt-out rather than opt-in. Employees will be able to opt-out after month six following commencement and after six months of each tri-annual increase and within a two-month window, with employees to receive a refund of their own contributions.

Outside these timeframes, the option exists to suspend contributions without a refund. In each case, the employer and State contributions will also cease.  Employees will automatically be enrolled again two years after cessation with the option to further suspend.

How will it be managed?

A Central Processing Authority (CPA) will be set up to ensure the best interests of participants and will:

• administer the system on behalf of enrolled employees, their employers and the State
• collect, pool and distribute contributions to commercial investment managers
• collect, pool and distribute financial investment returns to participants
• operate an online accounts portal where participants can see their savings pot grow
• facilitate a ‘pot-follows-member’ system whereby participants will benefit from owning one single auto enrolment pension pot across employments and throughout their working lives
• set standards for the commercial registered providers of AE investment products

Investment Fund Options

There will be a well-balanced and well-diversified default investment fund, plus three other fund options for employees who want to invest their money at different levels of risk.

While the CPA will settle the precise parameters of fund types closer to the launch of the system, the four fund types likely to be on offer will be:

• Conservative(e.g. a mix of Government bonds, cash and cash equivalents, blue chip private bonds and stock market index funds)
• Moderate risk(e.g. an investment portfolio involving a mix of Government bonds, blue-chip equities and property)
• Higher risk(e.g. a portfolio comprising of predominately equities, commodities and property)
• Default(e.g. operating on a lifestyle/ lifecycle basis)

A lifecycle investment approach is one where contributions for each member are invested more heavily in higher-risk growth investments, such as equities and property at younger ages and then gradually switched automatically to lower risk investments, such as bonds and cash as the member nears retirement.

Experience from abroad and OECD analysis shows that a default option is required for people who do not nominate a preferred fund type and is a key element in a successful Auto Enrolment system.

Please talk to us about how we can help you manage the new Auto-Enrolment Regime and work together, so your business remains within the law.