Publication
Auto-enrolment retirement savings system for employers
From Department of Social Protection
Published on
Last updated on
From Department of Social Protection
Published on
Last updated on
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:
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.
The contribution rates for auto-enrolment will be phased in over the first 10 years of the operation of the scheme:
| Employee | Employer | State | |
|---|---|---|---|
| Year 1 to 3 | 1.5% | 1.5% | 0.5% |
| Year 4 to 6 | 3% | 3% | 1% |
| Year 7 to 9 | 4.5% | 4.5% | 1.5% |
| Year 10+ | 6% | 6% | 2% |
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 deductible for corporation tax purposes.
An example, for someone earning €20,000 per year, the actual amounts are:
| Employee Yearly Contributions | Employer Yearly Contributions | State Yearly Contributions |
Total Yearly Contributions |
|
|---|---|---|---|---|
| Year 1 to 3 (contribution rate at 1.5%) | €300 | €300 | €100 | €700 |
| Year 4 to 6 (contribution rate at 3%) | €600 | €600 | €200 | €1400 |
| Year 7 to 9 (contribution rate at 4.5%) | €900 | €900 | €300 | €2100 |
| Year 10 + (contribution rate at 6%) | €1200 | €1200 | €400 | €2800 |
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.
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.
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.
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:
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.
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.
You should be aware that: