What is Automatic Enrolment?
/On 30th October the Government approved a large part of a new Automatic Enrolment Retirement Savings System which will supplement the State Pension from 2022. The aim of this process is to improve supplementary pension coverage. Is €248 per week enough for most of us to survive on when we reach retirement?
Who is it for?
Current and new employees aged between 23 and 60 years of age and earning €20,000 or above per annum across all employments will be automatically enrolled.
Employees earning below €20,000 per annum and employees aged under 23 and over 60 will be able to ‘opt-in’ to the system.
Employer contributions will be limited to a qualifying earnings threshold of €75,000 – which will be reviewed over time.
Employees who are existing members of a pension scheme/contract which meets prescribed minimum standards and contribution levels will not be automatically enrolled.
How will it work for employees?
Unless an employee is a member of a scheme already, contributions during the first six months of membership will be compulsory. Opt out is available after this time and a refund of contributions.
A limited number of ‘Savings Suspension periods’ will be facilitated for members who wish to temporarily cease making contributions. Employer and State tax relief will also cease in this scenario.
Members who opt-out will be automatically re-enrolled after three years but will have the ability to opt-out again under the same circumstances outlined above.
Employees (rather than employers) will be responsible for selecting a provider and a savings fund option. In the absence of any savings decision, the enrolled employee will be automatically allocated to a default fund. These funds will operate on a Defined Contribution basis.
Invested funds and scheme membership will follow the member when members change employments.
How will it work for employers?
Employees will be automatically enrolled with the Central Processing Authority by their employer on commencement of employment.
Employers will be required to make a matching (tax deductible) contribution on behalf of the employee i.e. at a specified contribution rate.
It is worth noting that the specifics of Auto Enrolment may change between now and 2022. Part of the reason the government are introducing this process is due to the reliance on the state pension. Some people feel there is a chance the state pension will eventually be phased out or will reduce over time for numerous reasons. The question people should ask themselves is, do they want to leave the future of their retirement lifestyle in the hands of future governments or would they prefer to save themselves and retain some element of control.
