Government publishes details of Auto Enrolment pension arrangement
Minister Heather Humphreys published details of the government’s Auto Enrolment (AE) pension arrangement on Tuesday 29 March. Irish Life has supported the introduction of an AE scheme since this was first proposed. AE is seen by the Government as a vital step towards bridging the ever growing pension gap and we believe it should be the impetus to drive a positive and pro-active cultural change within Ireland, enabling better pension provision and retirement outcomes for all. This has the potential to expand pension coverage to an additional 750,000 who are not currently in a pension scheme. The Government continues to set itself ambitious timelines and aims to commence the enrolment of employees in Q1 2024.
While much of the detail remains to be finalised, the main points from this week’s announcements include:
- The state will provide an SSIA style top-up of 33% of the employee contribution. Marginal rate tax relief will not apply. This has the potential to make AE more attractive for those not paying income tax and 20% rate tax payers, but is potentially less attractive for 40% rate tax payers.
- The Government have said there is no plan to change marginal rate tax relief treatment of contributions to occupational. pensions, PRSAs or Personal Pensions. The two systems will work in parallel with each other.
- Employers will be able to offset their contributions against corporation tax in the same way as they can for occupational pension contributions.
- Eligible employees are those between 23 and 60, and earning over €20,000.
- Employees under age 23 will be able to opt in if they wish.
- Contributions will be capped to earnings of €80,000.
- Employees already in pension schemes where the employer is contributing will not be enrolled in the AE system. Presumably there will be a requirement that any occupational pension scheme or PRSA will need employer and employee contributions at least equivalent to the AE scheme.
- Contributions will be phased in from 2024 to 2034 as follows:
| Employee | Employer | State | |
|---|---|---|---|
| Years 1 - 3 | 1.5% | 1.5% | 0.5% |
| Years 4 – 6 | 3% | 3% | 1% |
| Years 7 – 9 | 4.5% | 4.5% | 1.5% |
| Year 10+ | 6% | 6% | 2% |
- There will not be flexibility to contribute at other % of salary rates.
- It will be optional for employees to contribute on earnings above €80,000 (but without state top-up).
- There will be an option to opt-out during the 7th and 8th month of membership. Those opting out will get a refund of their own contributions, but the employer and state contributions will remain in the person’s pension. Those opting-out will be re-enrolled after 2 years, with a further opt-out window in the 7th and 8th month.
- Administration will be a combination of a Central Processing Agency (initially within the Dept of Social Protection) and 4 commercial Registered Providers/Investment Managers.
- The AE scheme will operate on a DC model with members having personal accounts. There will be a choice of four investment funds – Conservative, Moderate Risk, Higher Risk, and a Default option that will operate on a lifestyling basis.
- It is envisaged that the maximum annual charge will be 0.5% of assets under management.
- Access to retirement benefits will be aligned with the State Pension age (currently age 66).
- Retirement options will be in line with prevailing drawdown options and tax treatment. Presumably this means tax free lump sum will be based on 25% of the fund value, with the balance having a choice of annuity, ARF or taxable cash. However, the exact drawdown options are not stated.
Further information is available at www.gov.ie/AutoEnrolment