Last October, the Irish government confirmed it will introduce a new Automatic Enrolment Retirement Savings System, which is expected to come into effect in late 2023 – early 2024. This new system will require employers to automatically enrol their eligible employees into a pension scheme, to help ensure that more people have adequate pension savings upon retirement. Currently, it is envisaged that these schemes will be co-funded by their employer, and the state. Participation in the scheme will be voluntary for employees; however, employees will be automatically enrolled, and will have to opt out. The Bill states that employers will not be able to interfere, in any way with the automatic enrolment choices of an employee.
Here’s what employers need to know about the Automatic Enrolment Retirement Savings System:
WHO WILL BE AFFECTED?
All employers in Ireland will be affected by this new system, regardless of the size of their business. Employers will need to automatically enrol their eligible employees.
Eligible employees are those individuals who are between the ages of 23 and 60 and who earn more than €20,000 per year across all employments.
Employees changing jobs will not have to change pension scheme or join a new scheme, their savings will follow them from one job to the next. This has been described as a “pot follows member” approach. Workers with more than one job or multiple employments will have their savings consolidated into one pension.
HOW MUCH WILL EMPLOYEES AND EMPLOYER BE REQUIRED TO CONTRIBUTE TO THE SCHEME?
Employer and employee contributions will start at 1.5% of gross salary, and auto-escalate every three years, until reaching the maximum contribution rate of 6% from year 10 onwards. The state in turn, will make a contribution of €1 for every €3 saved by the employee.
WHAT DO EMPLOYERS NEED TO DO?
Employers will need to register with the Pensions Authority and provide information about their eligible employees, to include their name, address, date of birth, and salaries.
Prior to sharing this information, it is important that employers notify their employees of the data being shared with the Pensions Authority by way of a privacy notice. Employers will also need to provide information about the pension scheme they will be using, including the contribution levels, and the investment options available.
Once registered, employers will need to automatically enrol their eligible employees into the pension scheme and make contributions on their behalf. Employers will also need to provide employees with information about the pension scheme and their rights and responsibilities.
Employers will need to keep records of their compliance with the Automatic Enrolment Retirement Savings System, such records being available for inspection by the Central Processing Authority, if requested.
CAN AN EMPLOYEE OPT OUT?
Employees will be able to opt out or suspend their contributions after a mandatory participation period of 6 months. However, they will be automatically re-enrolled after two years. They will be able to suspend their contributions after a further 6-month participation period.
Participants will have a range of funds to choose from. These will include a default fund, for those who prefer not to choose, as well as an alternative choice of funds for those who wish to make a more active choice.
WHAT IS THE CENTRAL PROCESSING AUTHORITY?
The Central Processing Authority (CPA) is a new entity that will be established under the proposed Automatic Enrolment Retirement Savings System Bill 2022 in Ireland. The CPA will be responsible for the administration and operation of the automatic enrolment system, including the collection and processing of information from employers and employees, and the management of pension contributions and investments.
The CPA will have powers to request information and documentation from employers and employees, to conduct investigations and audits, and to take enforcement action for non-compliance with the automatic enrolment system. The CPA will also be responsible for establishing and maintaining a central register of pension schemes and providers that meet certain standards and requirements.
In summary, the CPA is a new entity that will be responsible for the administration and operation of the Automatic Enrolment Retirement Savings System in Ireland.
WHAT HAPPENS IF AN EMPLOYER’S FAILS TO MEET THE REQUIREMENTS OF THE AUTOMATIC ENROLMENT SYSTEM?
If an employer fails to comply with the requirements of the automatic enrolment system, the CPA may issue compliance notices directing the employer to take specified steps to remedy the non-compliance. If the employer fails to comply with the compliance notice, the CPA may issue a fixed payment notice requiring the employer to pay a fine. The amount of the fine will depend on the number of employees affected and the duration of the non-compliance.
If an employer continues to be non-compliant the CPA may take further enforcement action, including applying to the court for an order directing the employer to comply with the system or to appoint an authorised officer to take over the administration of the employer’s pension scheme.
It will be important for employers in Ireland to comply with the requirements of the Automatic Enrolment Retirement Savings System to avoid potential fines and enforcement action by the CPD. An employee can make a complaint to the CPA if they feel that they have been put at a disadvantage as a result of their choice to participate in the scheme. If the employee is successful in their claim, a compensation amount of €5,000 will be payable by the employer to the employee.
Forewarned is forearmed.
It is estimated that there are approximately 750,000 workers over the age of 23 who are not currently benefiting from a workplace pension scheme. Therefore, employers should review staff numbers, and the possible cost of the scheme to their business now, rather than wait until the Bill has been enacted, so they can take the appropriate financial measures to ensure the new autoenrollment system has a positive impact on their business. If employers wait until the scheme is enacted, and fail to prepare, they could find themselves subject to a CPA investigation for non-compliance.
The new Automatic Enrolment Retirement Savings System will require employers to automatically enrol eligible employees into a pension scheme, and make contributions on their behalf. Employers will need to register with the CPA and provide information about their eligible employees and the pension scheme they will be using.
Employers who already provide a pension scheme for their employees may be exempt from certain aspects of the new system, but they will still need to meet certain requirements, such as the minimum contribution levels.
It is important for employers in Ireland to understand their responsibilities under the new system, comply with the requirements of the CPA, and avoid potential fines and enforcement action. By providing a pension scheme for their employees, employers can improve staff retention and attract new talent, and help ensure that employees have adequate savings for retirement.
This article was co-written by Don McGann (Partner) and Robin Hyde (Associate).
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