ieExplains: What is pension auto-enrollment and how does it affect me?
Years, While Your For You Salary, Employer First And The 5% 5% Your Will Both Government The Will 1 Annual Of Pay Three Contribute
Ireland's retirement landscape is set to change significantly this year with hundreds of thousands of workers without pensions set to be automatically enrolled into a mandatory retirement savings scheme for the first time.
That means, for any employee over a certain age, a fixed amount of their paycheck will be taken and paid into a new pension plan, with the amount paid a set rate of one's annual salary.
But who will be automatically enrolled in this new scheme and when can we expect to see this introduced?
Auto-enrolment is expected to be introduced in the second half of 2024.
Any employee will be automatically enrolled in the new pension plan if they are:
- Aged between 23 and 60
- Not currently part of a pension plan
- Earning €20,000 or more per year
However, if an employee earns less than €20,000 per year, or is not aged between 23 and 60, they can choose to join the pension plan if they are not already part of a pension scheme.
The amount paid will be a set rate of the employee's annual salary. Employers will also have to match a worker's contributions and the Government will contribute an additional amount. An employee cannot pay more or less than the set rate.
For the first three years, both you and your employer will pay 1.5% of your annual salary, while the Government will contribute 0.5%.
The amount an employee and employer pay will rise to 3% from the 4th to the 6th year, before rising again to 4.5% between years 7 and 9. Once an employee reaches 10 years and beyond, this will increase to 6%.
Once an employee is enrolled, they must stay in the plan for at least 6 months. However, they can choose to leave the plan in month 7 or 8. They can also stop or pause contributions under specific circumstances.
However, employees will be re-enrolled (added back to the plan) after 2 years if still eligible for the scheme.
Under the plan, employers will match employee contributions up to a maximum of €80,000 of earnings.
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.
If an employee earns over €80,000, they can still contribute but their employer or the Government won't match their contributions on any income over €80,000.
People moving between jobs will not have to change pension scheme or join a new scheme. They will remain members of the auto-enrolment scheme on a ‘pot-follows-the-member’ basis. In addition, people with multiple employments will have their pension savings consolidated into one ‘pension pot’.