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PENSIONS | INVESTMENTS | RETIREMENT PLANNING | INSURANCES

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  • Understanding Auto Enrolment

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  • Corporate financial planning

  • ESG employee benefits

Page Author: Ciarán Hughes QFA

Auto enrolment

Q1 2024

Employer pensions to become mandatory from Q1 2024

Everyone

All employees over 23 and over €20,000 not already in a company pension scheme

Cost to employer

Sliding scale over time to 6% of employee salary. Can be treated as an expense

Choice

The only way to avoid the government scheme is to put a private company pension in place

Administration

Central processing unit (government agency) will manage admin and payments

Best strategy

Middle and higher income earners will be better off in a private scheme. Low paid workers could be better off on Auto enrolment

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Compare Auto enrolment to a Company pension

Features
Auto Enrolment
Company Pension
Best for?
Low tax employees
High tax employees
Set up difficulty?
Simple
Simple
Can employees opt out?
Yes
Yes
Employer clawback?
No
Yes (2 years)
Is financial advice provided?
No
Yes
Choice of pension provider?
No (random selection)
Yes (open market)
Fund choice?
Narrow
Broad
Tax relief rate?
33%
up to 40%
Tax relief cap?
€80,000
€115,000
Access to savings?
Age 66+
Age 50+
Retirement options
Standard only
Standard & Enhanced

Why Ethico

Traditional employee benefits do not deliver as intended
  • Many traditional employee benefit packages are not fit for purpose. Low levels of service, support and education lead to employees being unaware of the value being provided to them

  • At ethico we believe that a full-service, ethical package can achieve better value for money and renew participation from your team members

  • Ethical investing is a positive concept that employees can support and discuss. It provides meaning where traditional packages are lacking

  • Whether you wish to evaluate your current employee benefits package or are considering setting up a new scheme, our ethico advisors are available to advise you on your options

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Why Ethical investing

Strive for better in a changing world
  • Corporate actions globally have externalities and some are negative​. Ethical investing seeks to divest from companies with negative practices and focus on companies with positive environmental, social, and governance track records and targets. 

  • Ethical fund managers also take an active role as custodians of shareholder voting rights. By collaborating with decision makers at large companies, positive change can be encouraged on behalf of ethical investors.

  

  • Ethical investing seeks to reduce risk in a portfolio by taking a proactive approach to environmental, social, or governance issues that may cause drops in value in the future. 

New Scheme

Explore the benefits of setting up an employee benefit package
  •  Benefits cost less to provide than pro rata pay increases

  • Improve staff acquisition and retention

  • Create an environment where employees feel more valued

  • Provide financial wellness and expert advice

  • Ethico can search the market on your behalf and present the best group options available 

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Switch in 3 easy steps

At ethico we specialise in making the switching process seamless
  • Evaluate your existing benefits package

  • Make a recommendation on the pros and cons, and where you could improve

  • Facilitate a hassle-free sign up and on-boarding process 

Automatic Enrolment Retirement Savings System Design Principles

  • By the end of 2023, a new workplace pension program will have registered almost 750,000 workers.

  • A worker's pension savings account will be credited with €2.33 for every euro they save.

  • Employers will contribute a matching amount of 100%, and the State will increase the worker's payment by 33%.

  • All payments will be put into one of four funds, which the employee may choose from.

  • A person making €35,000 per year who saves 6% of their income will have €293,000 saved up (excluding investment returns) . Including expected investment returns, the amount might increase to €583,000.

  • Over the course of ten years, the AE pension savings system will produce approximately €21 billion in assets under management (excluding investment returns).

  • In addition to the annual State Pension payment of around €13,000, AE payouts will be made.

  • This $3 billion will be provided by the State. Employers will equal the €9 billion saved by savers with €9 billion in contributions.

Summary for Auto Enrolment:

There are about 750,000 adults over the age of 23 who make at least €20,000 a year but do not participate in a workplace pension plan.

Ensuring that all employees have access to a workplace pension plan and are actually enrolled in one as one of the main objectives of auto-enrolment (AE);

that individuals receive incentives to continue participating in the plan via employer payments and a State top-up;

that their pension options are given in an understandable manner through State monitoring and administration of the system;

that if they change employment, their pension money will follow them;

and, ultimately, that the retirement income from their employer pension contributions will enable them to maintain a decent level of living in comparison to their job wages.


What Employees Should Know About Auto-Enrolment


All employees will have access to a defined contribution workplace pension plan that includes both employer and state "top-up" contributions.

Although it will be optional, the AE system will function on a "opt-out" rather than a "opt-in" basis.

Employees who fall into this category are those who are between the ages of 23 and 60, make more than €20,000 annually (across all employments), and do not currently make contributions to occupational pensions.

Employees will have the option to leave the system at any time after a minimum membership period (during the seventh and eighth months of membership) and when contribution rates increase throughout the first ten years.

Additionally, employees will have complete discretion over when to stop contributing.

Four different retirement savings funds will be available for employees/members to select from:

- A conservative fund (such as one that invests primarily in Treasury securities, cash, or cash equivalents)

- A moderate risk fund (e.g. Government bonds, plus blue-chip equities, stock exchange indices etc.)

- A higher risk fund (e.g. equities and properties) (e.g. equities and properties)

- A "default fund" that will function according to lifestyle and lifecycle.

 

The four commercial investment managers who were selected through an open tender to provide the funds will each be required to provide one of each of the four fund types.

 

Every donation designated for a specific fund type will be gathered and divided among the commercial suppliers.

 

In a similar vein, all returns will also be pooled, which means that regardless of the amount of contributions made, all employees who choose the same fund type will receive the same return.

 

Employee contributions will be invested in the "default fund" if they are not chosen by the employee, along with employer and state contributions.

Employees' minimum contributions will increase by 1.5% each time over the course of 10 years up to a maximum of 6%, from their starting point 1.5% of gross earnings.

 

Up to an income threshold of €80,000, employers must equal the employee contribution.

 

Additionally, the State will give a top-up equal to 33% of the employee contribution. As a result, for every euro an employee saves, €2.33—their €1 personal contribution, €1 from their employer, and €0.33 from the State—would be deposited to their pension savings account.

 

A person joining AE on Day 1 and gradually increasing their contribution to 6% over the 10-year phase-in period, assuming an average member salary of €35,000, will save about €12,600 over the course of that time but, after accounting for employer and State contributions, will have about €29,000 credited to their account before any investment returns.

The State Pension age will be correlated with benefit drawdown. In accordance with the pension and tax laws in effect at the time of retirement, members will be able to withdraw their savings as a lump sum, annuity, or other permitted retirement product.

 

By utilizing the scale of a Central Processing Authority (CPA), administrative fees for all provider/fund alternatives will be kept to a minimum, with an annual management fee cap of 0.5% of assets under management.

 

By using a "pot-follows-member" strategy, member account portability across employments will be made easier. In other words, even if they move jobs, people maintain their pension fund and continue to participate in the program.

 

Employees who do not fall within the authorized AE age and earnings band thresholds may opt-in.

 

Through an online portal, all staff members and members will be able to see account information, update account information, request a suspension of payments, or exercise an opt-out.

What Employers Should Know About Auto-Enrolment

An occupational or workplace pension will be available to all of their employees who make more than €20,000 annually (across all of their employments).

 

Employers won't need to set up a plan, choose a pensions administrator or provider, or choose a savings option for their employees, unlike previous occupational pension plans.

 

However, employers must make sure that their payroll system is capable of receiving enrollment instructions, as well as of calculating and remitting both employee and employer contributions to the CPA.

 

Employers will be compelled to match members' payments up to a future maximum of 6%, up to a maximum of €80,000 in annual salary. (Contributions will start at 1.5 percent of members' earnings and rise to 6 percent by Year 10)

 

Contributions from employers will be deductible for corporate taxes.

 

If an employer disregards a payroll directive for enrolment or fails to deduct and return payments in a timely manner, they will be liable to an administrative fine at first and, if proven guilty, to criminal charges.

The Impact of Auto-Enrolment on the Pensions Sector

 

Customers of occupational pensions who have previously paid into the system through employer contributions will not be registered in the auto-enrolment scheme.

 

Commercial service providers will be given the opportunity to submit a bid to join the Auto-enrolment system as a "Registered Provider" of investment management services.

 

The administration and fund accounting services may also be invited to tender independently from other services. A web site will be used to administer pension administration services, including account statements and other documents. Any commercial provider working for the CPA in administrative and accounting capacities will be prohibited from working for the CPA in investment management capacities.

 

To supply savings/investment funds, a shortlist of up to four AE Registered Providers (RPs) will be chosen. Each supplier will have to make a finite number of the following funds available. 

The various fund options will be presented to enrolled employees for selection. The CPA will combine their contributions and divide them proportionately among the RPs.

 

Additionally, the investment returns made by the RPs will be combined by fund type, ensuring that each employee who invests in a given fund type would receive a return that is proportional to their contributions.

 

The overall savings are anticipated to be little over €21 billion after ten years, excluding investment returns and assuming that 725,000 workers stayed registered with an average gross wage of €35,000.

 

Employees and members won't interact or be related to RPs directly. The only client for the RPs will be the CPA.

 

The default fund will receive contributions from employees who choose not to exercise choice.

The duration of contracts with RPs is between five and seven years, after which a new open tender process will be held.

 

Members will be able to access their pensions through the current selection of regulated pension products and have the option to work with private providers.

 

The CPA might eventually submit a bid for a selection of pension drawdown products.

The Central Processing Authority (CPA)

 

The system's overall administration will be handled by a new CPA.

 

It will: Enter into a contract with a select group of for-profit "Auto-enrolment Registered Providers" to provide a selection of savings and investment products.

 

Arrange for the distribution of contributions to the preferred fund type of the members in accordance with their indicated preferences or on a default basis if no preference is expressed.

 

Arrange for the collection of the employee and employer contributions and the State "top-up."

Create a system that allows workers who fall outside the specified income and age restrictions to "opt-in" to it.

 

Establish a web-based site to enable employees and other members to view and choose from the available saving plan options, which will be presented in a clearly comparative way, in collaboration with any contracted administration provider.

 

Ensure that the instructions given by employees or members to halt savings are followed.

 

Schedule services for fund accounting (to maintain a statement of individual accounts and allocate returns to individual accounts).

 

Make plans for administrative assistance.

 

When members attain retirement age, funds from their pensions are distributed to them.

Background to Auto enrolment

Pensions work on the simple principle of saving money now to use it later. It is evident that many people find pensions challenging, nevertheless. Too many people struggle to save the necessary amount for retirement. Just 56% of people in employment have an active supplementary pension, and just 35% of employees in the private sector have such coverage, which reflects this.

 

The level of supplementary pensions coverage has remained steadfastly low throughout the past 20 years, ranging from just under 50% in 1995 to 56% presently, even though the policy objective has been to raise this overall rate (to around 70%). The marginal changes in coverage over the past 27 years clearly show that the purely voluntary approach to participation has not succeeded in raising coverage to an appropriate level, despite the considerable efforts of the government and the pensions industry to promote and incentivize voluntary participation in supplementary pensions.

 

It is evident that many people are not accumulating money for themselves in order to satisfy their own income goals for retirement (relative to the income they enjoyed while employed). Due to the "retirement savings gap," which is a welcome rise in life expectancy, many people may experience major and unwelcome declines in their living standards during retirement if nothing is done.

There are several causes for this savings disparity. At its most basic level, it is a truism to acknowledge that when given the choice between putting money aside to take care of a current need and addressing a potential need in the future, the certainty associated with taking care of the current need will typically take precedence over the potential for a future reward from saving.

 

This is undoubtedly the case for many low-income individuals who frequently have little options and for whom present expenditures are more typically dictated by necessity than by choice. Therefore, there are two challenges we must overcome: first, we must instill the same sense of urgency about saving for retirement; and second, we must assist individuals with low to middle incomes in accumulating retirement savings. These two objectives make up the core of our suggested Automatic Enrolment method.

 

The Organization for Economic Co-operation and Development (OECD) concluded in its 2014 "Review of the Irish Pensions System" that the single most important objective of Irish pension policy should be to increase coverage through the implementation of a mandatory or nearly mandatory earnings-related system. Ireland was one of only two OECD members at the time without a mandated earnings-related pillar for retirement savings, which the organization emphasized in its recommendation.

 

The outcome of the Citizens' Assembly discussions also indicated the need for action to overcome saving hurdles, with 87% of participants believing that the government should enact some kind of mandated pension program to complement the State Pension and close the retirement savings gap. The Government's current plan to implement such a savings program is outlined in this design document.

How pensions are now

Ireland's pension system uses what is referred to as a "multi-pillar model," just like other OECD members. As the "bedrock" of the pension system, pillar 1 is the publicly managed State Pension, which in Ireland ensures an income replacement rate of around 34% of annual wages. This would not provide the kind of retirement income to which many people desire, but it is typically enough to protect against poverty when combined with other benefits like the Fuel Allowance.

 

Supplemental occupational pension plans make up pillar 2. These often include defined contribution savings plans run by companies. The majority of the time, participation is 'opt-in' and voluntary, with some but not all companies contributing an employer contribution. Tax relief is available on employee contributions at the marginal rate. Even though they are offered by for-profit pension companies, many times the plans are employer-specific, making it difficult for money to be moved readily between plans when a person changes employers.

 

Individual pension plans, such as Personal Retirement Savings Accounts, are part of Pillar 3's privately organized personal pension savings (PRSAs). About 56% of the working population actively contributes to a supplementary pension scheme3, according to CSO statistics. When the private sector is taken out of the equation, it is predicted that this might be as low as 35%.

 

The fact that there is some evidence to show that many people may not be saving enough to ensure a reasonable pension in retirement adds to this group of employees' relatively low coverage rate. For instance, according to data from the Revenue Commissioners, the typical pension contribution as a percentage of gross salary is only between 3% and 6%. Overall, many workers may see an unexpected decline in living conditions when they retire as a result of this low supplementary pension savings rate.

AE in development

The AE retirement savings scheme was created in order to overcome the inadequate level of supplemental pension coverage. Employees who do not have an occupational or supplemental pension are registered into a retirement savings plan automatically under the AE system. The following are some of the main distinctions between the proposed auto enrolment model and the current occupational pension system:

 

It will still be optional, but it will be "opt-out" as opposed to "opt-in."

 

All employees will be given the option and the right to enroll in the system.

 

A payment from the company and one from the state will benefit all employees.

 

The "pot-follows member" strategy will be used to transfer the pension plan between jobs/professions.

 

Employers won't have to worry about finding, setting up, and managing occupational pension plans anymore.

 

As was already indicated, the choice to implement an auto enrolment program is compatible with the main suggestion made in the OECD's "Review of the Irish Pensions System," which was released in 2014. In response, the then-Government announced plans to create and implement a State-sponsored supplemental retirement savings scheme into which employees would be registered automatically in "A Roadmap for Pensions Reform 2018-2023." A "Strawman" design was then released to enable an extensive public consultation procedure. The Government authorized a number of significant AE system design components in October 2019 after taking into account the feedback from this process. The pledge to implement a pension Auto enrolment system was repeated in the Programme for Government: "Our Shared Future" in June 2020. This commitment laid the groundwork for gradually implementing the system in accordance with the following guidelines:

 

The payments provided by both employees and employers will be implemented gradually over the course of ten years.

 

Both employees and employers will make matching contributions, and the State will supplement those contributions. For individuals who decide to opt out, there will be a provision for doing so.

 

There will be a variety of retirement savings programs available to workers.

 

A cap will be put in place to prevent management fees from eroding or lowering returns.

 

The Economic Recovery Plan, released in July 2021, stipulates that the essential governmental, organizational, and procedural frameworks must be put in place over the course of 2022 and 2023 in accordance with the Programme for Government's pledge.

 

The "Report of the Commission on Pensions" was released by the government in October 2021. This impartial Commission had been created to look into State Pension eligibility and sustainability issues. Favoring the "multi-pillar strategy," it also supported the implementation of an auto-enrolment system as a way to increase the sufficiency of future pensioners' retirement incomes.

 

The final design guidelines for the AE system are presented in this publication. It is the outcome of years of deliberation about the best strategy to meet the requirements of Irish society. The opinions and suggestions of numerous national and international specialists, pension and investment management firms, and industry representative bodies are all considered. The design also incorporates lessons from other nations, like the UK, Australia, Sweden, Denmark, and New Zealand, because Ireland was a late adoption of AE. It incorporates some of their best techniques while avoiding well-known flaws.

 

The design has taken into account research and analysis, particularly those done by ESRI and the OECD. The Department also benefited from outside assistance obtained through the Technical Support Instrument of the European Commission's Directorate General for Structural Reform Support (DGREFORM).

Eligibility

 

 The €20,000 earnings level was chosen in recognition of the need to strike a balance between present and future income challenges, particularly for lower-paid workers, and retirement income provision. This limit is established for all employment that a person may have.

 

Unless they are second earners, people on very low wages typically spend their entire income, leaving little to no room for savings. While increasing the degree of supplementary savings coverage is the goal of AE, it is not deemed desirable to automatically enlist all low-income earners.

 

Instead, employees with incomes below the specified threshold will be granted opt-in access to the AE system. When employees with incomes below the threshold choose to participate in the system, their employer is required to match those payments, and the State provides a top-up.

 

The earnings threshold also accounts for retirement income replacement rates. The percentage of pre-retirement income that can be earned by people in retirement is referred to as the "replacement rate." It is commonly accepted that, in order to maintain adequate living standards in retirement, those with lower incomes require higher replacement rates than those with higher incomes. The lower age cutoff for automatic enrollment is to be established at 23 years old. Any employee who is younger than that age may choose to participate.

 

Research indicates that people under the age of 23 are also more likely to work in multiple, short-term roles, which reflects the fact that Ireland has one of the highest levels of participation in third level education among OECD countries, even though it is important to start saving for retirement as early as possible. As a result, starting a full-time job is postponed.

 

The maximum age for automatic enrollment is to be set at 60 years old because it is unlikely that a participant who joins beyond this age will build up a sizeable pension fund before retiring. Any employee who is older than that, though, is free to opt in.

 

When AE is first implemented, employees who are over 60 will not be automatically enrolled; instead, those who are enrolled when they are younger will continue to make payments and remain in the system after turning 60, or until they begin to get their pension. Every five years, the income and age requirements will be reviewed and, if necessary, adjusted to take into account changes in labor market participation and wages.

 

According to information from the Revenue Commissioners, 750,000 employees will be automatically enlisted in the first phase based on these qualifying requirements. With this level of membership, a 95% retention rate, and an average gross member salary of €35,000, it is predicted that funds under administration will rise at an average pace of about €900 million per year in years 1 through 3, increasing to €4 billion per year by the end of year 10. 10 It is predicted that funds under administration (excluding investment returns) will total just under €21 billion by the conclusion of Year 10.

Employee and Employer contributions 

This strategy is in line with the Programme for Government's pledge that the contribution made by employees will be implemented gradually over a ten-year period. Employee contributions will be phased in over time to give businesses and employees time to get used to the new arrangement.

 

Even with a relatively low contribution rate in the early years, people will see their savings topped up by the employer and State contribution and increase over time, which is another goal of the phased approach—to encourage people to stay in the system rather than drop out.

 

The OECD and ESRI analysis on the minimum level of pension contribution needed to guarantee an appropriate level of income replacement in retirement is consistent with the 14% overall contribution rate (consisting of 6% per employer, 6% per employee, plus a 2% State top-up). The top restriction on employer payments is there to keep costs down for businesses while yet maintaining a crucial incentive for low- and middle-income workers.

 

The top earnings level for employer contributions is €80,000, which is roughly double the gross national average salary (based on Q4 2020 earnings data from the CSO Earnings and Labour Costs Survey, with irregular earnings and overtime earnings excluded).

 

Every five years, this income threshold will be examined and, if necessary, changed.

The Government contribution 

For every €1 a person deposits into their AE savings account, the State will contribute 33 cents. Including the employer match, this translates to a total deposit into the retirement savings account of €2.33 for each euro an employee contributes.

 

With an example gross pay of €35,000 per year, this means that the employee will personally save around €40 per week at the 6% contribution rate, but when you factor in the employer match and the State top-up, your total weekly savings will come to about €94.


For four primary reasons, a top-up has been chosen over a tax relief system:

 

- The State support for retirement savings is quite obvious and is not lost in a larger system of tax reliefs, making it easier to understand and more transparent in its use.

- Second, under tax relief, an employee would need to make a larger gross contribution (about 8% to attain the same pension pool) in order to receive the same amount in tax back.

 

- Thirdly, regardless of marginal tax rate, it treats everyone equally.

 

- Fourth, and linked to the third argument, it implies that all employees receive benefits from a State contribution even if they are not subject to income tax. (According to the ESRI, up to 75% of prospective AE participants will pay the ordinary tax rate of 20% or will not be subject to the income tax net.)

The Central Processing Unit

There will be a "Central Processing Authority" (CPA). It will be in charge of the system's development, management, coordination, and operation.

 

Four investment managers/RPs will be organized and acquired by it, and each of them will be expected to provide the specified range of fund alternatives.

 

It will gather donations and distribute them to the members' preferred fund on a pooled basis (or will invest on a default investment basis if the member does not indicate a preferred choice).

 

In order to ensure that every participant in each fund type receives the same, weighted average return, it will pool and distribute investment returns from each fund manager.

 

For members, it will offer money management and accounting services (which may be farmed out on a "back-office" basis to reputable service providers but are still provided by the CPA).

 

An online portal for both employees and employers would be made available and run by it. Members will be able to specify their preferred fund, exercise opt-out and suspension rights, and amend personal information, such as a change in job, thanks to this.

 

It will put the "pot-follows-member" strategy into practice. The CPA will keep and manage that pot centrally on behalf of the member because there will only be one AE pension pot per member as opposed to various pots across employments and across RPs of investment services.

 

By defining a maximum allowable annual administration and investment management charge of up to a maximum of 0.5% of assets under management, it will ensure that management costs are kept to a minimum.

 

The CPA will be established administratively inside the Department of Social Protection, pending the passage of the requisite legislation creating the AE system. After the AE law is passed, the CPA will be a legally independent organization under the control of the Pensions Authority.

 

The commercial pensions market's expertise will be used by the CPA to carry out its duties in both the areas of investment management and fund administration. However, the CPA will make administration simpler for both businesses and employees by serving as a clearinghouse or "one-stop shop."

The 4 Registered providers 

According to CPA standards, which will also incorporate certain ethical/ESG (Environmental, Social, and Governance) criteria, the RPs will provide investment products.

 

While the CPA will determine the specifics of fund kinds closer to the system's introduction, RPs must provide four fund types

 

- To be conservative (e.g. a mix of Government bonds, cash and cash equivalents, blue chip private bonds and stock market index funds)

- Risk moderate (e.g. an investment portfolio involving a mix of Government bonds, blue-chip equities and property)

 

- Greater risk (e.g. a portfolio comprising of predominately equities, commodities and property)

 

- Default (for example, functioning according to a lifestyle or lifetime basis)

 

A default choice is necessary for persons who do not specify a preferred fund type and is a crucial component of a successful AE system, according to international experience and OECD studies. This AE system's default fund will take a lifecycle/lifestyle approach.

 

In general, investing would function as follows:

 

All pension contributions are collected by CPA;

 

Participants choose a fund type through the CPA's web portal; those who don't choose a fund will be automatically assigned to the default fund;

 

The CPA will combine all pension contributions into one pool and distribute them among the RPs in accordance with the fund of their choice;

 

Each fund type's financial returns will also be gathered into a pool and distributed to the individual members who make up that fund type's accounts.

 

The RPs won't be able to see who each individual contributor is since they are serving as the CPA's investment managers. Instead, they will serve the CPA as their sole client.

 

Each individual contributor is exposed to exactly the same amount of risk for their preferred fund choice and in accordance with their level of contribution because of the pooling and composite investment design characteristics. Therefore, for their chosen fund option and in accordance with their amount of contribution, each contributor will receive the same level of financial return as every other donor.

 

Contracts with registered providers will periodically be put out to market for a period of up to 5-7 years.

 

Members will be able to access their pensions through the current selection of regulated pension products, and they will be free to work with private providers.

 

A set of pension drawdown products may eventually be put out for tender by the Central Processing Authority.

Opting Out

To offer flexibility and member choice, two opt-out alternatives and a savings suspension facility are envisioned as follows:

 

Six months following enrollment, participants have a two-month window to withdraw from the program (i.e. within months 7-8). If a participant chooses to opt out in this manner, their own payments made since enrolling will be returned, but any employer and State contributions made up to that point will stay in the member's pension pot.

 

Six months after a change in the contribution rate, participants have a two-month window to withdraw (i.e. within months 7-8). When a participant exercises their right to opt-out in this manner, they will receive a refund for any additional contributions they have personally made since the rate change (i.e., the difference between the old rate and the new rate for the time period spanning the new rate until the date they opt-out), but all of their prior contributions at the old rate of contribution will stay in their pension pot.

 

Additionally, the participant's pension fund will continue to hold any employer and state contributions made at any rate. This option will only be accessible for the first ten years of the AE system, during which time the contribution rate will gradually grow from 1.5% to 6%.

 

Outside of these specific times, participants are free to pause their involvement whenever they like. However, the participant won't get a refund for any donations made up until the suspension date. Instead, their payments—along with any employer and State contributions made up to the date of suspension—will remain in their pension pool.

 

A participant who chooses to forego or suspends their contributions will automatically re-enroll after two years, at which point they may choose to forego or suspend again in accordance with the alternatives listed above. Important to keep in mind is that if a participant suspends or opts out, both the employer's payment and the state top-up will cease until the person is re-enrolled.

Drawdown at retirement

It will be consistent with State Pension arrangements for Members to have access to their pension savings and investment funds (currently from age 66).

Members will have access to their accrued funds upon retirement for use in accordance with current pension and tax regulations, such as a lump sum (within regulated limitations), an annuity, or an approved retirement fund (ARF).

The CPA may, if there is demand, tender for a set of pension drawdown choices that it will make accessible to members. Members are allowed to choose a pension plan from the open market.

Time Line

Establish CPA on administrative basis within Department of Social Protection Q2-Q3 2022

 

Legislative Heads of Bill drafted and Government approval Q3-Q4 2022

 

Legislation enacted Q3 2023 CPA organisation established on statutorily independent basis Q4 2023

 

Completed development/procurement of initial IT system/ infrastructure Q4 2023

 

Procurement of investment managers completed Q4 2023

 

Commencement of automatic enrolments Q1 2024

Employer Questions

What is the advantage to me, the employer? Why am I required to pay my employee the same as I do?

 

Concerns about their post-retirement pension plans are growing among workers as the population ages. They depend more on their employers to offer, sponsor, or at the very least arrange pension benefits.  From the standpoint of the market and consumer demand, ESRI research suggests that AE will benefit the economy in the long run since retirees would have more disposable income than they would have otherwise had if they relied solely on the State Pension. Consumer demand and corporate revenue will be sustained as a result. The practice of matching employer payments into employees' pension pots reflects these advantages and, in particular, acknowledges that employers gain from employees' feeling of security towards post employment retirement, hence boosting their sense of wellbeing. Finally, permitting and facilitating pension provision cannot be placed only in the hands of employees or the government. Recognizing that providing for retirement income is a cost of production that should be borne by all parties who profit from the returns of production is a crucial feature of a tripartite social contract in a modern economy.


How frequently must I make donations, and is it possible to put off making them?


The operating procedure of the CPA will be supported by an automated IT infrastructure that will evaluate incoming employee data and determine if the employee satisfies the requirements for AE. There will be no requirement for employers to determine eligibility. There will be no waiting period before contributions are deducted once an employee is determined to be qualified and enrolment with the CPA begins. In a perfect world, wages would be paid along with both employee and employer AE contributions. The goal is to lessen the administrative load on employers as much as possible, even though the specific operational components will be implemented throughout the course of the following year. Once the required contributions have been made, employers are no longer liable.

Do I still need to register an employee if they are part-time, casual, or still on probation?


Whether they are part-time, casual, or on probation, all current and incoming employees will be evaluated for AE eligibility and enrolled if they satisfy the requirements. If the requirements are met, the CPA will determine if the employee satisfies them, and AE contributions from both employees and employers will start on the first paycheck following enrolment.


Will installing AE cost me money?


Employers' administrative expenses and difficulties are minimized by the system. It is also not meant to introduce the entire system at once. The new arrangements will be implemented gradually, according to the Government's pragmatic approach. This includes small contributions starting in 2024 that will gradually be increased in a sustainable and regulated manner. It's also important to remember that an employer's AE obligations might be interwoven with the software and payroll systems they utilize. To guarantee seamless integration, secure execution, and precise processes, employers' associations and the suppliers of payroll systems and services will be consulted.


If my company is unable to donate the whole amount, may I contribute less?


The AE system will not accept variable contribution payments. The AE system will be as automated as feasible, and the employer's contribution payments will be based on precisely specified employer obligations.


Is there a cap on what employers will contribute to earnings?


Employer payments will be capped at a maximum salary of €80,000, which the CPA will probably revisit over time.


Will the contributions I make to my employees' AE fund qualify for tax relief?

 

Employer contributions to AE funds will qualify for tax relief in the same way as employer contributions to occupational pension plans currently do, which means they can be deducted from one's taxable income when calculating corporation tax.