Auto-Enrolment Pension

Auto-Enrolment Pension – What Does It Mean for You?

The auto-enrolment pension scheme aims to tackle the problem of low pension provision in the private sector in Ireland.

New research from the CCCP survey showed that just 38% of adults surveyed have no pension plan in place.

Note: This scheme will not affect public sector employees in Ireland as they all have work pension arrangements already.

The new system is designed to simplify the pensions decision for workers and make it easier for employers to offer a workplace pension. Although auto-enrolment originally was supposed to start in 2022, the start date now is 2024 due to the Covid-19 pandemic. The scheme is voluntary, but the onus is on people to opt out rather than to opt in. This is an effort to encourage people to save for their retirement.

Who is Eligible for an Auto-Enrolment Pension?

The scheme is aimed at private sector workers aged 23-60 who earn €20,000 plus a year and are not already part of a work pension scheme. This is estimated to be about 750,000 people in Ireland.

Although employees will be enrolled automatically, they will be able to opt out or suspend participation after 6 months. However, if you opted out, you will be automatically re-enrolled after two years. Furthermore, you will only get back your contributions and not the employer and state contributions.

What are the Contributions?

Employer and employee contributions will start at 1.5%, increasing every 3 years until they reach 6% in 2034. Employers are required to match contributions and the state pay contributions on a 1:3 basis. €1 saved by you is equal to €2.33 into your pension pot. These contributions are capped at €80,000 salary. Contributions will be paid to the Central Processing Authority (CPA), a body set up by the government to handle the administration of this new scheme.

Contributions to the scheme will be introduced on the following a phased basis:

Years Employee
(as % of salary 1)
(as % of salary 1)
(as % of salary 1)
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%

The scheme will be capped at €80,000 of an employee’s gross salary but people earning above that amount can still make additional contributions to the scheme. However, employers will not be required to match the amount.

How will the Auto-Enrolment Pension be Administered?

The CPA provide 4 different investment options, high risk, medium risk, low risk and default. If you do not choose a risk preference you will be placed into the default category. An interesting thing to note is that risk is pooled within the different options. This means that if you choose a low-risk fund and the CPA has 4 different low risk funds, you will get the average return of all 4 funds combined. The government document released on this also makes it clear that this scheme will not interfere with the supplementary pension scheme or tax-relief scheme which is already in place.

The scheme employs a “pot-follows-member” approach. This means that people who move jobs will not have to change/join new pension schemes. Also, people who work multiple jobs will have their pensions consolidated into one pot.

Is an Auto-Enrolment Pension a Good Thing?

Yes, for private sector workers who have no pension arrangements in place. The Contributory State Pension alone provides basic survival income in retirement. However, with inflation and aging population, additional pension provision is becoming essential. The auto-enrolment scheme will ensure that employers match employee contributions which is expected to be a significant motivation to contribute.

For private sector employees who are already part of a work pension scheme, their existing arrangement may be more beneficial depending on the level of employer contributions. Furthermore, 40% taxpayers currently receive 40% back from Revenue on their contributions. This is higher than the 30% which the state will contribute under the auto-enrolment scheme. These employees may be better off staying with their existing arrangements.

What are The Possible Setbacks?

There are some issues and criticisms in respect of the proposed new scheme. A private sector which already took a hit from the pandemic and increasing energy and transport costs may meet this extra expense with concern. However, the government’s decision to roll this scheme out over the course of the next 12 years will allow for ample time to adjust. The incremental increase of 1.5% every 3 years shouldn’t have any great impact on their operations. This change will also save some businesses money as they will not have to invest any money in establishing an occupational scheme anymore. They will simply have to facilitate the payroll deductions.

A connected fear can be that employers who currently offer more generous pension schemes may phase them out and join the cheaper auto-enrolment option.

All considered, the proposed auto-enrolment scheme is a step forward in tackling the low pension provision levels in the Irish private sector. It is worth remembering that pensions can still be quite complicated and financial advice will not go out of fashion.

What Does the Financial Planning Review Cover?

We review all your pensions and calculate what your retirement income will look like. Based on that analysis, we can recommend a course of action so you can maximise your benefits. Very few employees we talk to have entered full-time employment from day one and stayed with the same employer for their whole working life. Employees call us worried about old pensions, career breaks, job sharing, working abroad, etc. Things are never straightforward until we produce your free report. This is a fantastic no obligation review of your financial wellbeing.

We find that often employees do not fully understand all the fields on their payslip. This can lead to problems, such as not being on the right salary scale point for public sector employees, or not using all your tax breaks correctly.

Whether you need to protect you family’s future, mortgage or plan for inheritance taxes, it is key to have the right insurance policy for your needs. Furthermore, as part of the report, we will search the market for the best prices out there.

If you have more than 3-6 months pay in your bank account (your emergency fund), you are faced with questions how to use your money wisely. Should you increase your pension contributions, open a savings account for your children’s education, invest in bonds, etc.? The MadeSimple report makes these questions much easier to answer taking into account your tax position and financial objectives.

Step 1

You – Complete a short online application form

Step 2

We – Generate your personal report that outlines your current benefits.

Step 3

Together – We schedule a review online (we use Zoom, or a platform you may suggest) or over the phone to discuss what options are available to you.

Start Now! Book Your Review

After we complete the review, many employees are delighted to have their options regarding pension planning, salary protection, life protection, savings and investments explained to them so clearly. Not only that, but we can also set up policies for you all online in a very fast and efficient manner. 

Get your complimentary, personalised review today! You have nothing to lose!

Mike Foley
Mike FoleyFinancial Advisor, MadeSimple