The objective of the proposed auto-enrolment scheme is to ensure that every worker will have access to a workplace pension to supplement the basic state pension.
The aim is to increase active participation of the private sector workforce in supplementary pension provision from a current level of approximately 35%, as measured by the Central Statistics Office, to the long since stated government policy objective of 70% and beyond.
The proposal, which is scheduled to go live from the first quarter of 2024 will mean that all employees not already contributing to an existing employer pension scheme who are aged between 23 and 60 and earning €20,000 or more across all employments, will be required to automatically enrol in the new scheme.
The proposed design, which is still subject to specific draft legislation to be passed by the Dail, envisages matching contributions from employers and employees, with a 33% uplift of the employee contribution from the State in lieu of income tax relief. The initial contribution proposed is 1.5% by both employer and employer and a 0.5% state contribution, totalling 3.5% of an employee’s salary, in year one.
The phase-in of the scheme will mean that contribution requirements will increase every three years by 1.5% for employer and employee, reaching a total contribution of 14% in year 10, made up of 6% each for employers and employees and 2% from the state. These contributions will apply to earnings up to €80,000.
While the proposed scheme is voluntary, the approach is opt-out rather than opt-in. Employees will be able to opt out after month six following commencement and after six months of each tri-annual increase within a two-month window, with employees to receive a refund of their own contributions.
Outside these timeframes the option exists to suspend contributions without a refund. In each case the employer and state contributions also cease. Employees will automatically be enrolled again two years after cessation with the option to further suspend.