Auto-enrolment retirement savings system for employers

A guide to auto-enrolment retirement savings system for employers

Auto-enrolment is a new retirement savings scheme for employees who do not already have a workplace pension scheme or an additional pension arrangement.

It will ensure that employees are looked after in retirement without a need for you to set up an occupational pension scheme.

The National Automatic Enrolment Retirement Savings Authority (NAERSA) will administer the auto-enrolment scheme, leaving minimal administrative work for you to do. NAERSA will act as the caretaker of the employee’s interests and savings.

NAERSA will determine which employees are eligible for auto-enrolment using Revenue payroll data, and it will enrol them.

It will collect all employee, employer and State contributions, and invest the money on your employee’s behalf. A default investment strategy will be in place, but some alternative investment options will be available for those who may wish to make an active investment choice. NAERSA will allocate any investment returns to their savings pot. Employees will keep one savings pot as they move from job to job – this is known as the ‘pot-follows-member’ approach.

NAERSA will operate an online portal for employees, to manage employee opt-outs, opt-ins, suspension of contributions and re-enrolment. It will also operate an online portal for employers, to facilitate the payment and monitoring of contributions.

NAERSA will pay employees State Pension age which is currently 66.

All of this will mean that as an employer you will have minimal administrative work in relation to auto-enrolment.

NAERSA will identify whether employees are eligible for auto-enrolment, so employers will not need to determine whether their employees meet the eligibility criteria.

Employees who meet these conditions will be automatically enrolled:

• aged between 23 and 60
• earning €20,000 or more per annum across all employments
• do not have existing supplementary pension coverage

If an employee is a member of an occupational pension scheme or trust, Retirement Annuity Contract (RAC)or has a Personal Retirement Savings Account (PRSA) or Pan-European Personal Pension Product (PEPP), where this is recorded in payroll, they will not be auto-enrolled.

Employees who are under 23 or over 60 years of age, or who earn less than €20,000 a year, will be able to opt in if they wish. All auto-enrolment conditions – such as contributions from the employer, the employee and the State - will apply for employees who opt in.

People who are self-employed and those who are not currently earning an income through an employer will not be enrolled and will not be able to opt in initially.

If there is a pension contribution from the employee or employer, paid through payroll, that employment will be exempt from the auto-enrolment scheme. The employee will not be automatically enrolled for that employment and will not be able to opt in based on that employment. However, if the employee has another employment for which pension contributions are not paid, they can be auto-enrolled or opt into the scheme in respect of that second employment.

For the first few years of auto-enrolment, any pension contribution greater than zero will be enough to exempt an employment. However, by the end of year six of the operation of the scheme, at the latest, standards for the exemption of existing pension schemes will be developed with the assistance of the Pensions Authority.

Learn more about how eligibility will be determined for employees with multiple employments.

The contribution rates for auto-enrolment will be phased in over the first 10 years of the operation of the scheme:

• 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%

As the employer, you will match your employees’ contributions. Instead of tax relief on employee contributions, the State will provide a top-up contribution at a rate of €1 for every €3 paid in by the employee. As the employee and employer contributions are matched equally and then topped-up by the State, the total amount of contributions will amount to 14% of an employee’s gross earnings from year 10 onwards.

The contributions will be fixed at the set rate, and it will not be possible for you or your employees to pay more or less than this rate.

Contributions will be calculated on the employee’s gross earnings, so anything included in the gross pay field of a payroll file will be assessable. Contributions will not, however, be levied on any gross pay over €80,000.

Employer contributions will be eligible for tax relief for the employer and will not be subject to benefit-in-kind for the employee.

An example, for someone earning €20,000 per year, the actual amounts are:

Learn about how contributions will be invested.

Learn about what will happen to an employee’s savings at retirement .

In the case that an employee opts-out or suspends contributions, this will also mean employer contributions are suspended. This is also the case when an employee is not being paid. All of this means that when an employee isn’t making contributions, as their employer you won’t make contributions either.

It is important to note that employees should not be pressured by employers to opt-out or suspend their participation in the scheme. A range of penalties are provided for in the legislation to help prevent this practice.

NAERSA will use Revenue payroll data to identify eligible employees. Where an employee within the eligible age bracket has a record of earnings, NAERSA will examine it to see if the employee has earned €20,000 or more in the previous 12 months.

In determining if an employee has met the earnings threshold, a lookback period of up to 13 weeks will be used. If the lookback period indicates that an employee has earned the proportionate amount in that period, the employee will be enrolled.

Auto-enrolment will be immediate for employees who have a clear earnings record of €20,000 or more. Enrolment may take some time (up to 13 weeks) if the employee has just started work in an employment for the first time or has a gap between their prior and current employment(s). Contributions will not be backdated for the time it takes to determine eligibility.

There will be no waiting period in the auto-enrolment scheme, so employees will be enrolled as soon as they are deemed eligible. This means that if your occupational scheme has a waiting period, employees could be automatically enrolled before they can join your scheme. If this happens, and the employee later wants to join the occupational scheme, they will be able to do so. That employment will become exempt from auto-enrolment. Any overlapping contributions will be refunded, and the employee’s auto-enrolment savings pot will continue to be managed by NAERSA.

Learn more about how auto-enrolment will impact other pension coverage options.

Employees who were auto-enrolled because they fulfilled the eligibility criteria will stay enrolled even if their earnings in subsequent years drop below €20,000.

If employees do not meet the age and income thresholds, they have the option to opt into the scheme. When an employee opts-in they have the same rights as an employee that was automatically enrolled. That means, as an employer you will have the same obligations towards them including making matching contributions.

Learn about how employees can opt out or suspend auto-enrolment.

Once an employee has been identified as eligible for auto-enrolment, NAERSA will send you an Automatic Enrolment Payroll Notification (AEPN) through payroll software.

This will inform you of the contribution amounts you and the employee need to pay as a percentage of gross earnings.

You will apply the AEPN and the contributions will be visible on the employee’s payslip.

You have several options to pay the contribution amounts to NAERSA. The easiest way will be a variable direct debit, which can be set up through the auto-enrolment employer portal.

Contributions must be paid at the same time as the employee is paid, and contribution information must be provided to NAERSA.

If you do not use payroll software, you will be facilitated on the employer portal.

If an employee is on unpaid leave (for example sick leave or maternity leave), contributions will not be deductible for the period of unpaid leave.

You and/or your tax agent will be able to use your Revenue Online Services (ROS)credentials to log in to the employer portal.

Through the portal, you will be able to access information about contributions paid and owed, and set up direct debit arrangements.

The portal will also facilitate employers who do not use payroll software to pay contributions.

Learn about how the employee portal will work.

Auto-enrolment will ensure that employees are looked after in retirement without a need for you to set up your own occupational pension scheme.

The benefits of auto-enrolment for employers include:

• 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

As auto-enrolment is new employment right, you have responsibility to ensure that all eligible employees have access to the scheme.

The legislation sets out compliance and enforcement provisions to ensure that employers meet their auto-enrolment obligations.

Employers who prevent their employees from joining the scheme, or who force their employees to opt out or suspend contributions, may be prosecuted and will be subject to fines and penalties. Withheld or underpaid contributions will attract interest payments.

Employers will also be obliged to inform their employees when they are first enrolled.

NAERSA will also publish a list of employers who have been convicted of non-compliance.

The Workplace Relations Commission will be responsible for dealing with cases where employees are hindered from joining auto-enrolment and/or are penalised for doing so.

Auto-enrolment is another pension option and is not intended to replace offerings in the current pension market. This also means that auto-enrolment will not replace any existing obligations that employers have in relation to facilitating pensions or PRSAs for employees.

What does it mean for employers?

You should be aware that:

• all of your employees meeting the eligibility criteria, who do not already have pension coverage in respect of their employment with you will be auto-enrolled
• you will need to ensure that your payroll software, when updated, can take instruction for enrolment, calculate and pay employee and employer contributions to NAERSA
• you will be required to match members’ contributions up to an eventual maximum of 6% subject to an earnings threshold of €80,000
• if you fail to meet your auto-enrolment obligations as an employer, you will be subject to penalties and possibly to prosecution

What do employers need to consider?