Pension Reform: A Giant Leap for Auto Enrolment?

Auto enrolment in Ireland is expected to be introduced in early 2025, despite the reservations of many that it can be done by then. Our Pensions team reviews recent developments regarding auto enrolment and master trusts.

At the National Pensions Summit earlier this year, the Irish Minister for Social Protection outlined the planned introduction of auto enrolment.. We outline and review some key takeaways from her speech.

Auto enrolment coming in 2025

The Automatic Enrolment Retirement Saving System Act 2024 provides for an auto enrolment pension system to be set up in Ireland. The Department of Social Protection describes it is a “quasi-mandatory pension system where employees, subject to certain parameters, are auto-enrolled into a quality-assured retirement savings system, with freedom to opt-out. Its purpose is to increase supplementary pension coverage.”

In her speech at the National Pensions Summit, the Minister for Social Protection emphasised that, “2024 is going to be the year that auto enrolment is delivered.” The Automatic Enrolment Retirement Saving System Act 2024 was signed by the President on 9 July 2024 but the exact start date for automatic enrolment remains to be confirmed. Many employers are rightly concerned about the introduction of the auto enrolment pension system. This is due to the fact that its introduction largely coincides with high inflation, increases in the minimum wage and the introduction of statutory sick pay. The Minister explained that auto enrolment will be introduced on a phased basis, requiring lower contributions from employers initially, at a rate of 1.5% of gross pay for the first three years. In addition, the Minister said that employees who are auto-enrolled in the scheme but subsequently want to join their employer’s scheme will have the opportunity to do so. Auto enrolment will not prevent employers from offering their own scheme to employees, especially in the case where that scheme may be more suitable for the employee’s circumstances. The Minister finished by encouraging employers to discuss pension coverage with their employees to ensure that employees choose the appropriate option for their needs, either auto enrolment or their employer’s pension scheme.

Master trusts: the next regulatory target?

The pensions market in Ireland is experiencing significant consolidation. The dominant pension arrangement available in Ireland is the master trust. The Minister noted that master trusts:

• Facilitate enhanced supervision by the Pensions Authority
• Help to improve the overall standards of scheme governance and security, and
• Increase economies of scale which should facilitate lower costs to members

While master trusts were introduced by EU law by the IORP II Directive, there is no distinctive legislative scheme for them in Ireland. However, the Minister noted that the Department of Social Protection is in the process of identifying requirements and developing proposals to provide a legal underpinning for a master trust regime in Ireland. The nature of this scheme will be to provide for an authorisation process, which will ensure that all master trust schemes meet certain standards.

Conclusion

This is an exciting but challenging time for pension providers, investment managers, employers and employees. While the planned introduction of an auto enrolment system in 2025 is welcome in principle, it is expected that employers in particular will face a range of practical difficulties in dealing with auto enrolment. The timeline for an operational system of auto enrolment set by the Minister in her speech also feels aspirational, where so many tasks such as the appointment of investment managers, establishment of the oversight body and implementation of an administrative regime remain to be completed.

The development of a new legal regime for master trusts was always expected. As the master trust has become the main IORP II-compliant pension arrangement in Ireland, it is crucial that it benefits from a robust system of regulation.

For more information on auto enrolment and its impact on you as an employer, contact a member of our Pensions team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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