Pension auto-enrolment: How business advisers can help employers
The introduction of pension auto-enrolment will be significant for Irish employers. Business advisors could help you to prepare.
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.
Minister Humphreys said recently, “Auto-enrolment is a truly transformative policy that I am proud to deliver for Ireland. It will make sure that hard working men and women across the country will be able to save for their future, with help from their employers and the State. I am delighted that this historic legislation has now passed both Houses of the Oireachtas and look forward to it being enacted shortly.”
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.
This article lists some key advisers that will be able to help you prepare for this significant upcoming change. These range from pension providers to HR and legal experts, as well as financial advisers. In particular, we discuss:
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.
Ross Curran, who is CEO and founder of Curran Futures has already been discussing the implications of auto-enrolment with several of his company clients and he says that all sorts of conundrums and ramifications are being thrown up.
“Choosing a one-size-fits-all scheme will be extremely difficult and, in our view, it is almost certain that in the small and medium-sized enterprise space, it will be necessary to have a blended approach.”
Ross Curran, CEO and founder of Curran Futures
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.
For instance, as Ross points out, occupational pensions are generally only offered to employees once they have passed their probationary period, but now an employee will be required to contribute to a pension immediately.
So, will an auto-enrolment pension be offered as a stopgap, or will the newly hired employee be signed up for the occupational pension immediately? 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.
Ross believes advice is essential, but there would be a cost. He expects that guidelines will be set around the format of any advice and the costs that may be charged.
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.
Recent webinars include those from the business lobby group IBEC, the Employment and Recruitment Federation, and the law firm Mason Hayes Curran, in association with the Irish Association of Pension Funds.
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, and 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.
Moira Grassick is COO of Peninsula, which offers advice on HR and employment law, and she advises to start planning now.
“Setting up an internal communications plan can help employers anticipate and handle inevitable staff questions, as well as maintain transparency within their organisation.
The details will vary, but overall, we recommend establishing which information you are able to provide internally, how the scheme will affect an employee’s salary, and how it will impact their employment contract.
A 2-way process is additionally always beneficial, as having an open communication policy will allow employees to feel comfortable addressing any concern they may have.”
Moira Grassick, COO of Peninsula
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).
“For the moment, the required employer contributions are relatively low. However, over time they will grow, and the final 6% employer contribution is higher than many of the current employer contribution rates, which are generally 3%-5%,” adds Ross.
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.”
And as Moira points out, these increased costs could potentially change your recruitment plans. “This extra financial responsibility could affect a business’s decisions around hiring new workers or upskilling existing staff, especially given the ongoing skills shortage and concerns around inflated labour costs.”
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.
“Many employers could consider it an additional financial challenge on top of many others that this past year has brought. Still, I’m confident that with enough information, support and preparation, Irish businesses will successfully manage the transition,” comments Moira.
So don’t wait until the last minute. Begin preparing today.
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