Ireland: Auto-enrolment update and other pension changes

Employer Action Code: Monitor

Mandatory automatic-enrolment (AE) of employees in a central pension fund (or employer retirement plan) is now targeted to launch in 2024. Earlier this year, the Irish government released its design for the proposed AE system. Auto-enrolment legislation is now making its way through the Irish parliament. Please see our latest client update: Auto enrolment vs occupational defined contribution pension provision (issued in November 2022) for details on the potential employer response to these new AE requirements.

The Irish government has also announced proposals to incentivize employees to defer receipt of their State pension beyond State Pension Age (SPA, age 66) and to gradually change the calculation of state pension benefit entitlement to a “total contributions approach” (TCA); both measures are intended to extend working careers.

In addition, the 2022 Finance Bill includes tax provisions under which employer contributions to employees’ Personal Retirement Savings Accounts (PRSAs) would no longer be treated as a taxable benefits-in-kind and Pan-European Pension Plans (PEPPs) would receive the same tax treatment as existing pension products.

Further details

Auto-enrolment

• The design of the new AE system is largely in line with the 2019 proposal, i.e., employers that do not provide a “qualified” retirement plan (exact parameters still to be determined) would be required to enroll all employees between age 23 and 60, earning €20,000 or more annually, into a central government-run defined contribution (DC) retirement fund. Employees under age 23 or over age 60 would be able to opt in on a voluntary basis. The minimum employer and employee contribution rates would be gradually phased in, starting in 2024 at 1.5% of pre-tax earnings, increasing every three years by 1.5 percentage points until reaching 6% (each) by 2034. The employee contributions are taken from after-tax earnings. The government will apply a €1 top-up for each €3 of employee contribution. An earnings cap of €80,000 applies to employer contribution requirements.

PRSAs/PEPPs

• Employer contributions to employee PRSAs, which are currently treated as a taxable benefits-in-kind for the employee, would no longer be taxable to the employee (similar to contributions to approved retirement plans). The Finance Bill also provides that PEPPs (established in Ireland in August 2022) receive the same tax treatment as PRSAs and other qualified pension plans.

Employer implications

The changes to the tax treatment of PRSAs and PEPPs will take effect from January 1, 2023 (assuming the Finance Bill is signed by the president in December as normal). Prospects for the passage of the AE pension legislation are less clear as various issues still need to be resolved. For example, one key AE area where information is lacking is the “quality test” that existing occupational pension plans would need to pass in order to be usable as an alternative to enrolling employees in the central government AE vehicle.

While medium and large firms generally provide retirement plans (nearly all firms surveyed by WTW do so), it is estimated that only 35% of all private sector workers have any retirement savings at all beyond social security.