Automatic Enrolment is expected to start in 2025

The Automatic Enrolment Retirement Savings System is to provide a retirement plan for people without a work or private pension to save for retirement, which will supplement the State Pension.

Why is it being introduced?

*  Not many people have work or private pensions and will only depend on the State Pension when they retire. This means that they may experience a drop in income when they retire which could lead to a fall in their standard of living.

*  Ireland has an aging population, in the future there will be fewer people of working age to support the retired population. To make sure people have enough money when they retire, it is important that people start saving for their future now.

Who will be automatically enrolled?

• Current and new employees aged between 23 and 60 years of age and earning €20,000 or above per annum 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 €80,000.

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 employee contributions.

~  Members who opt-out will be automatically re-enrolled after two years but will have the ability to opt-out again under the same circumstances outlined above.

~  Invested funds and scheme membership will follow the member when members change employments.

~  Contributions are calculated on your gross salary, starting at 1.5% of your salary and will gradually increase to 6% by year 10. For every €3 that you contribute to your pension fund, your employer will put in €3, and the Government will put in €1. This means that for every €3 you contribute, €7 will be added to your account.

How will it work for employers?

>  Employees will be automatically enrolled with the National Automatic Enrolment Retirement Savings Authority by their employer via payroll software.

>  Employers will be required to make a matching (tax deductible) contribution on behalf of the employee i.e. at a specified contribution rate.

>  Any existing company pension schemes will run parallel to auto-enrolment. Any employees that have a record via payroll of either employee or employer contributions will not be auto-enrolled.

>  Self-employed individuals will not be included in the auto-enrolment scheme.

PLEASE NOTE : This information is correct as of May 2024 - the details of Auto Enrolment are being updated regularly so visit https://www.gov.ie/en/campaigns/0ab04-automatic-enrolment-for-pensions-hub/ for the most recent information.

A Personal Story...

The following is a story of a couple with three children and how they came to review their finances.

“My husband and I had put off any sort of review for numerous reasons. To be honest we didn’t really understand what was involved in a financial review, we had limited funds at the end of each month and didn’t really think about how we would fare financially if something insidious happened to either of us.

We had a life assurance plan that will clear our mortgage if one of us dies and a small life assurance policy with some serious illness cover. We had discussed the importance of starting a pension (for both of us) but had just never gotten around to it. So before proceeding, we decided to get a financial review. For the review we filled out a budgeting form outlining our day to day expenses and including any other relevant information (like our mortgage and any savings or insurance plans we had).

While our initial intentions were to focus primarily on what should go into the pension pots, during the review we got a clear idea of areas we hadn’t considered. The budget showed us how much money we had each month after all our bills had been paid. We were also able to see a visual graph of our income/savings should myself or my partner die or were unable to work long term…which took us by surprise.

We decided on the amounts to put towards our pensions and then asked our broker to work on our other requirements to keep within a budget of €100 per month. We discussed multiple options to try cover our salary and assurance needs within that budget and he was then able to show how this solution would cover us on the same graph shown to us initially.

After the meeting we felt the following queries (relevant to our situation) were addressed;

-       The length of time we would get a wage from our employer before they stop paying us should we be unable to work for a prolonged period.

-       The cost to protect our income.

-       The figure we could afford per month and the best way to utilise it.

I certainly feel that we now have a better understanding of our finances. We have started to put the correct provisions in place for retirement while addressing additional protection needs. This has been like a medical check-up on our financial health.”