What is Auto-enrolment? Important things employers need to know about workplace pensions

Auto-enrolment is a new pension savings scheme for employees who are not paying into a pension. They will be automatically included in the scheme but can opt out after 6 months.
Under the scheme, the employee, employer, and Government all pay a certain amount into the employee’s pension fund.
what is auto enrolment
Here’s what we cover:

Who will be automatically enrolled?

Employees will be automatically enrolled in the new pension scheme if they are an employee and:

  • age between 23 and 60
  • are not currently part of a pension plan
  • earn €20,000 or more per year

If employee previously contributed to a pension but don’t anymore, and meet the other conditions, they will be automatically enrolled.

If employee earn less than €20,000 per year, or are not age between 23 and 60, they can choose to join the pension scheme if they are not already part of a pension plan.

Employer Contributions

The amount employee pay will be a set rate of their annual salary. The employer will match employee contributions, and the Government will contribute an additional amount. Employees cannot pay more or less than the set rate.

Employee and employer will pay 1.5% of your annual salary in the first year. This will increase to 6% by year 10.

The table below sets out the rates employee, employer, and the Government will pay:

Example

Year Employee Rate Employer Rate Govt Rate
1 to 3 1.5% 1.5% 0.5%
4 to 6 3% 3% 1%
7 to 9 4.5% 4.5% 1.5%
10 and after 6% 6% 2%

Example

The table below includes an example of a worker earning €20,000 a year:

Year Employee Contribution Rate Employer Pays Government Pays
1 to 3 €300 €300 €100
4 to 6           €600 €600 €200
7 to 9 €900 €900 €300
10 and after €1,200 €1,200 €400

 

What is the maximum contribution?

For every €3 employee contribute to pension fund, employer will put in €3, and the Government will put in €1. This means that for every €3 employee contribute, €7 will be added to their account.

Both an employer’s and the Government’s contributions are capped at €80,000 gross annual salary.

This means for the first 3 years, the maximum amount an employer can contribute is €1,200 a year. This is because 1.5% of €80,000 is €1,200. The maximum amount the Government can contribute is €400 a year, which is 0.5% of €80,000.

If employee earn over €80,000, they can still contribute but employer or the Government won’t match they contributions on any income over €80,000.

Tax Deduction

It is important to note that employer contributions to this scheme will be tax deductible.

Penalties

If you do not meet your auto-enrolment obligations, you will be subject to penalties and possibly to prosecution. If you don’t make contributions on employees behalf, you may be fined and have to make repayments with interest.

However, there are no plans to force employers to contribute to personal pensions.

Can Employee leave (opt-out of) the pension scheme?

After employee are enrolled, they must stay in the pension scheme for at least 6 months. If they opt-out 6 months after you have been enrolled, your contributions will be refunded.

Automatically re-enrolled after 2 years

If employee leave the plan or suspend their contributions, they will be automatically re-enrolled after 2 years if they are still eligible for the scheme. However, if they have an alternative pension plan, they won’t be re-enrolled.

They can rejoin the plan at any time before the 2 years pass.

When will it start?

Auto-enrolment is expected to be introduced in January 2025.

Employment contracts

You’ll need to review employment contracts. You should consult your solicitor well in advance of the January 2025 to ensure your employment contracts are updated to include the provision for pension contributions.

Communication with employees

You have till January 2025 to ensure employees fully understand the scheme before it begins.

You should provide details of the scheme and advise employees how much they will contribute, tax implications and the benefits of the scheme, including the employer and State contribution.

Participants in the new scheme will still be entitled to receive a ‘benefit-in-kind’ tax exemption in respect of their employer’s contribution.

How scheme will operate

We do not have too much information yet on how this new pension Auto-enrolment scheme will operate. This page will be updated as more detail becomes available.

We strongly advise you to start working about the increase in cost due to scheme

 

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