The new state occupational pension scheme is not intended to replace any existing pension plans. The Irish government introduced the new bill to address the issue that approximately 750,000 employees earning EUR 20,000 or more per year currently do not participate in a workplace pension scheme. Such employees are usually employed in lower-paid sectors such as tourism and retail, where it is uncommon for employers to offer a workplace pension scheme.
The new mandate will apply to employees aged 23 to 60 years old, earning EUR 20,000 or more per year, and not currently contributing to an occupational pension scheme. Employees outside the age and earnings thresholds can voluntarily opt in to the new pension scheme. It is unclear if non-eligible employees will be allowed to voluntary opt in if they are already enrolled in a pension scheme.
Employers that do not provide a qualified pension plan (exact criteria not yet available) will be required to automatically enroll all their eligible employees into the new occupational pension scheme and match incremental automatic increases in the contribution rate until it reaches 6% in 10 years.
The auto-enrolment pension will be administered by a government established Central Processing Authority (CPA) with an intent to minimize costs at a maximum of 0.5% of assets.
Employees will have a choice to invest their contributions in one of four different pension savings funds, ranging from conservative, moderate, and higher risk, and if no fund is chosen, contributions will be automatically invested in the default. Employees will be able to manage their account via an online portal and may remain enrolled in the same scheme when changing employers.
The new pension scheme will provide for a phased increase to contribution rates for the employee, employer, and government over a period of ten years.
The contributions rates will begin in 2024 at 1.5% of the gross annual salary for the employer and the employee. Rates incrementally increase every three years by 1.5% until they reach a statutory limit of 6% by year ten (2034). In addition, the government will also contribute EUR 1 for each EUR 3 contribution made by the employee. Employer and government contributions will be subject to an income threshold of EUR 80,000 gross annual salary. Employees will be allowed to contribute more to the new pension scheme in any given year. However, those excess contributions are not required to be matched by the employer or the government.
Illustration of phased increases to contribution rates
Employees can choose whether or not they participate before and after automatic enrollment. After being automatically enrolled in the new pension scheme for six months, employees will have a two-month period during which they can opt out or suspend their participation. Employees who opt out or suspend their participation will be automatically re-enrolled in the new pension scheme every two years and will again have two months to opt out or suspend their participation after six months.
If the legislation passes, employers will need to review their payroll and administrative processes and account for the additional costs associated with the new automatic enrollment pension scheme. Employers should consider these changes in any current salary planning, pension plan redesign or pension contract renewal. Employers should monitor future legislation finalizing the requirements and implementation timeframes.