Ireland: Auto-enrollment retirement savings system moves ahead

Employer Action Code: Act

The Irish government has published Automatic Enrolment Retirement Savings System Bill 2024, which is now with Parliament and is expected to pass, with enactment by July 2024 and implementation in January 2025 of the mandate for employers to enroll employees in a new workplace retirement savings system.

Full commentary on the bill and a detailed overview of the new Automatic Enrolment (AE) system can be found in our article: Irish Government publishes the Automatic Enrolment Retirement Savings System Bill.

Key details

• From January 2025 (or the start of employment if later) employees between the ages of 23 and 60 who earn 20,000 euros or more a year and who are not members of an employer’s pension plan would be auto-enrolled in a new government-run AE plan. Employees would be able to opt out periodically, subject to automatic re-enrollment, as well as the possibility to opt in again.
• Initially there would be no quality test in place for employers’ plans.
• The government AE plan would operate on an individual defined contribution (DC) account basis, with a limited range of investment options (low, medium and high risk) and a default fund.
• Those employees enrolled in the government AE plan would initially contribute at 1.5% of gross earnings, fully matched by employer contributions on annual pay up to €80,000 in 2025. The government would pay a contribution of 0.5% of gross earnings. There would be no income tax relief given on the employees’ contributions. The employee base rate (and employer match) would increase by 1.5 percentage points every three years until reaching 6.0% (each) in 2034; the government contribution would increase by 0.5 percentage points every three years until reaching 2.0% in 2034.

Employer implications

Though designs vary, the typical retirement plan offered by employers is a DC arrangement, jointly funded by employee and employer contributions at 12% of base pay at the median (7% from the employer and 5% from the employee). However, many employers have cohorts of employees who do not participate in their plans, either because they are not (yet) eligible or they are eligible but have not engaged with retirement saving. When the new AE system goes live, any employees on an employer’s payroll who do not participate in the employer’s plan would be auto-enrolled in the government AE plan. This would result in companies running dual pension systems for their employees. The government AE plan is inferior to the vast majority of occupational pension plans, so it is important that companies consider their AE strategy and plan any necessary employee communications ahead of the AE system going live in early 2025.