Get Ready for Pension Auto-enrollment

The introduction of pension auto-enrolment will be significant for employers, both in terms of administration and also potentially in terms of costs, depending on the circumstances.

Under the scheme, employees who do not have a private pension, earn more than €20,000 per year, and are aged between 23 and 60, will automatically be enrolled into the pension scheme. 

An employee can opt out or suspend contributions after 6 months. However, the employee will be re-enrolled after 2 years. Once re-enrolled, the employee can opt out again after another 6 months. 

The bill has been passed and is set to be introduced on 30 September 2025. 

While the scheme is targeted at employees who do not have a pension, such as many hospitality and retail workers, it will pose questions for many companies.

As such, in the coming months, you should seek as much advice as possible about the implications for your company and your employees. 

Here’s what this article will cover:

• Choosing what type of pension to offer

• Consult with state bodies

  • Pension Authority

  • Revenue

• Assessing your business networks

• Communicate with employees

• Payroll implications

• Budgeting

• Put the groundwork in now

  
  

Choosing what type of pension to offer

Firstly, the major decision to make is what type of pension you are going to offer your employees who will be eligible for pension auto-enrolment.

Though the scheme is designed to be straightforward and the administering of the scheme should be relatively simple, there are potentially big strategic questions that many companies will have to grapple with. Brokers, investment companies such as Irish Life and Davy, and actuarial consultants would be able to offer guidance.

If you already offer an occupational pension, you will now have to decide whether to open your existing plan to all employees or, instead, allow for auto-enrolment for non-participating employees.

However, even if you as an employer would prefer the latter, the employee cannot be obligated to join an occupational scheme, so auto-enrolment must remain an option.

On the other hand, if your company currently offers no pension, then you will have to decide whether to offer an auto-enrolment pension, or perhaps instead decide to set up an occupational pension or offer a Personal Retirement Savings Account (PRSA).

These 2 latter options offer generous tax relief of 40% for single (unmarried) employees on higher salaries of over €42,000.

Under the auto-enrolment scheme, there is no tax relief, but the government tops up the contribution by 33%. This means if a single person earns €42,000 or less, the auto-enrolment pension will be more beneficial.

That being said, the comparison is not as simple as that, as the lack of tax relief means that auto-enrolment will have a greater impact on take-home pay than the current system of pension tax relief. So, the nitty gritty of these choices may require specialist consultation.

Whatever decision you make will have serious implications for your company. If you currently have an occupational pension system in place, then you’ve probably already pondered many issues around pensions and have some system in place.

However, if the pension auto-enrolment scheme will be the first pension to be administered in your company, then there will be a steeper learning curve.

Also, if you already offer an occupational pension, you could potentially consult with your current pension provider as to the ramifications of auto-enrolment.

Consult with state bodies

State bodies will also be able to give advice, though this is more likely to be from a technical and compliance point of view, rather than providing an overarching perspective on what would be the best option for your company.

In particular, the Pensions Authority and Revenue will be able to help with queries. However, if they are flooded with queries, it may take time for them to respond.

Pension Authority

The Pension Authority will manage the scheme, via a newly created body, the National Automatic Enrolment Retirement Savings Authority (NAERSA) and Tata Consultancy Services (TCS), its preferred bidder. It has a section on its website dedicated to employers.  

It currently provides checklists and guides for employers for occupational and PRSA pensions and will likely do the same for auto-enrolment. 

From the press release provided by the government, “The Authority will identify and enrol participants, collect and pool contributions, arrange for the investment of contributions, manage participant accounts including opt-outs, suspensions and opt-ins, and facilitate the payment of savings at retirement.” 

Revenue

Revenue will be responsible for collecting pension contributions through employees’ taxes and will be able to offer advice on any payroll queries or tax implications.

Assessing your business networks

You should also consult with any business networks that you are currently a member of.

For instance, several organisations have already run webinars—some of which have been exclusive to members and others which have been open to any interested party.

Communicate with employees

You will also have to consider how you will communicate the pension changes with your employees.

You will have to inform employees about:

• The process

• Their rights to opt in or out

• How contributions will be handled

• The scheme’s benefits.

Communication should be clear, compliant, and timely.

While it is not up to you as an employer to outline the best pension options for your employees (out of the 4 strategies the government has confirmed will be on offer, 3 are varying levels of risk and return, and 1 is the default level which employees will be auto-enrolled onto if they do not choose), these questions will crop up, and you will have to consider how to handle them. 

In advance of the legislation coming into force, you will also have to review employment contracts regarding pensions. It would be wise to consult your company solicitor or in-house legal department about what this entails.

Payroll implications

You will need to ensure that your payroll system can handle automatic pension contributions.

This includes setting up deductions from pay and employer contributions, as well as monitoring pay and age to pinpoint which employee should be enrolled in the pension.

In addition, you will need to keep track of employees who opt out and are required to be signed up again 2 years later.

If you already use software to process your payroll, your provider can advise on how the new scheme will affect your payroll system.

Smaller companies that do not have a third-party payroll system may need to seek advice from their accountants.

Budgeting

Ensure that you budget for your contributions, bearing in mind that, as with existing pension schemes, employer contributions are treated as normal business expenses and will be deductible against corporation tax. 

These contributions will increase over a 10-year period. In year 1 (2025), the employee and employer will each pay 1.5% of the employee’s annual gross salary, with this gradually increasing to 6% by year 10 (2034). 

In the government’s plan “The State will also top up contributions by €1 for every €3 saved by the employee, up to a maximum of €80,000 of earnings. This is in addition to the €3 that will also be contributed by the employer. 

This means that for every €3 saved by an employee, a further €4 will be contributed to their pension pot by their employer and the State – that is every €3 contribution by an employee automatically grows to €7 before it is invested.” 

The government has been keen to stress that, “Administrative costs and burdens are to be kept to an absolute minimum for both employers and employees.” 

Either your in-house company accountant or an external accountant can advise on how best to manage the increased costs and also perhaps how it would compare with a private pension in terms of costs. 

Put the groundwork in now

The introduction of pension auto-enrolment will have significant consequences for your company. It’s crucial to understand its implications and to start planning now.

By putting the time and thought in at the initial stages, you can ensure that the process runs as smoothly as possible and that you get the most benefit for both your employees and your company.