The Government approved the General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022 last October. Under the Bill, employees will have access to a workplace pension savings scheme, which is co-funded by their employer and the State. We take a closer look at some of the key features of the Bill.
The Automatic Enrolment Retirement Savings System Bill 2022 provides for an auto enrolment (AE) system to be set up in Ireland by the end of this year, with enrolments expected to commence in 2024. It is expected that an initial 750,000 workers will be enrolled into scheme, which will include matching employer contributions and a State top-up. Participation in the scheme will be voluntary and workers will be able to opt-out or suspend participations for periods of time. The full Bill is available to view here.
Employers should note that, under the Bill, they may not interfere in any way in the AE choices made by an employee. This ensures that an employee’s participation in the AE scheme is fully protected, prior to and during their employment. Screening out applicants on the basis that they want to participate in the AE scheme is also prohibited as well as inducing an employee to opt-out or suspend their participation in the AE scheme.
Central Processing Authority and calculating contributions
The Central Processing Authority (CPA) will be established to manage the AE system. It will do much of the administrative work and will act in a custodianship capacity for AE participants. The CPA will have a fiduciary duty to act in the best interests of the participants of the scheme. An employee can make a complaint to the CPA if they feel that they have been put at a disadvantage as a result of their choice to participate in the AE scheme. If the employee is successful in their claim, a compensation amount of €5,000 will be payable by the employer to the employee.
It is also noteworthy that employers have the obligation to correctly calculate, withhold and pay the employee’s AE contribution to the CPA. The reason for this is that the employer administers the payroll, and so is best placed to ensure that contributions are correctly calculated and deducted from the employee’s net pay. The Bill enables the CPA to apply to the High Court to ensure that an employer complies with an instruction or determination, properly given by the CPA.
Scope of the Bill
Key features of the Bill include:
- All employees who are aged between 23 and 60 and who are not already in an occupational pension scheme and are earning over €20,000/year across all employments will be automatically enrolled.
- Employer and employee contributions will start at 1.5% of gross salary and auto-escalate every three years, until reaching the maximum contribution rate of 6% from year 10 onwards.
- The employer’s contributions will match the employee’s contributions and the State will also contribute at a rate of €1 for every €3 saved by the employee.
- Workers will be able to opt-out or suspend their contributions after six months mandatory participation. However, they will be automatically re-enrolled after two years, after which they may opt-out or suspend their contributions after six months mandatory participation.
- The CPA will be established to oversee the AE system and will act in a custodianship capacity for participants.
- Commercial investment companies will compete through an open tender for the role of “registered provider” and will invest contributions on behalf of the participants.
- Participants will have a range of funds to choose from. These will include a default fund, for those who prefer not to choose, as well as an alternative choice of funds for those who wish to make a more active choice.
- Drawdown will be aligned with the State Pension age.
The Bill was referred to the Joint Oireachtas Committee on Social Protection for Pre-Legislative Scrutiny (Committee) in December of last year. A number of concerns were raised, including the proposal to restrict AE to workers aged over 23 years. Under the Bill, workers under that age group may opt in if they wish to do so. Concerns were also raised about how the default model will be constructed, as well as the ethical framework that will underpin the scheme’s investment decision making.
The Bill defines the term ‘minimum standards’ as “the standards that shall apply to a qualifying occupational pension scheme in order to apply an exemption from auto-enrolment.” However, that term only occurs on two further occasions throughout the Bill, and we have no additional information at present on what these standards will look like.
However, it is anticipated that the minimum standards will be similar to those required in the UK for its AE system, which requires a minimum level of employer contribution. Once these minimum standards are finalised, employers that wish to remain exempt from AE will need to work with the trustees of their existing scheme to ensure that the standards are met. This is likely to require amendments to the scheme’s governing documentation.
The introduction of an AE system is an important and welcome development in the Irish pensions landscape. The legislation is still being drafted so many of the details and concerns raised at the Committee are still being worked out. As noted at the Committee, the system must be easy for workers and employers to engage with so that they can trust it and buy into it. Further, it must be designed to minimise the administrative burden and legal responsibility on employers, which has always been a blocker on the provision of pension systems.
For more information on AE, contact a member of our Pensions team, or listen to our Webinar: Auto-Enrolment – A New Approach?
The content of this article is provided for information purposes only and does not constitute legal or other advice.