As per our October 2022 briefing, auto-enrolment (AE) is to be introduced in Ireland following approval of the General Scheme of the Automatic Enrolment Retirement Savings System Bill (AE Heads of Bill).
Since approval, the AE Heads of Bill have been progressing through the Irish legislative process with several key stakeholders (the Pensions Authority, Insurance Ireland & the ESRI) contributing to the latest stage of pre-legislative scrutiny of the Heads. In this briefing we consider the key themes emerging from the ongoing legislative process.
The AE Heads of Bill, which set down a high-level outline of the form of AE to be introduced in Ireland, will need to be translated into draft legislation and enacted before the Irish AE scheme is established. As such, AE proposals are still at a relatively early stage and the Heads of Bill are open to amendment. However, and despite the criticism of the ambitious timeline, the Government is resolutely keeping to the 2024 target roll-out date for now.
AE provides for auto-enrolment in a workplace pension of employees between the ages of 23 and 60 and earning more than €20,000. The system would operate on an ‘opt-out’ basis which means, in broad terms, that employees who wish to ‘opt-out’ can only do so after being enrolled for 6 months and at which point they would be refunded their contributions but then re-enrolled periodically. The introduction of AE is expected to result in the enrolment of 750,000 employees in a new workplace pension scheme. This number is expected to grow significantly over time.
- proposed age criteria of 23 has been cited as high by international standards and as having the potential to discriminate against those entering the workforce without first attending third level education.
- proposed qualifying salary of €20,000 has also come in for criticism as being too high a threshold.
The Gender Pensions Gap
- several stakeholders consider the AE proposals (as currently drafted) have the potential to exacerbate the gender pensions gap in Ireland e.g., a qualifying salary of €20,000 could result in the exclusion of part-time, hospitality and care workers, which would disproportionately impact women.
- AE Heads of Bill do not envisage any facility for payment of voluntary or additional employee contributions to top up retirement savings after periods of absence from the workforce.
- use of a State top-up tax incentivisation, included for equality reasons (i.e., the top-up was more valuable to lower earners and easier to understand), has been criticised as overly complex given its interaction with the tax relief in schemes.
- 2024 introduction of AE has been acknowledged as ambitious, given the need to establish the Central Processing Authority (CPA) through which AE would operate, and stakeholders have queried whether more time was necessary given the experiences in other jurisdictions.
Administrative Complexity for Employers with Schemes
Under current proposals, employers with an existing pension scheme may be exempt from AE if the existing scheme satisfies the threshold for a “qualifying occupational pension scheme” (a Qualifying Scheme). The AE Heads of Bill provides as follows:
- a Qualifying Scheme must be a scheme into which the employer and employee are “actively making contributions”. For employers that operate a scheme where employee contributions are voluntary (even if employer contributions are higher than AE levels) that employer may still need to operate AE separately to its scheme;
- a waiting period for AE is prohibited. For any employer that operates a scheme on the basis of a waiting period for eligibility, that employer may need to comply with AE at least until employees are eligible for scheme membership; and
- the employee has no choice but to be enrolled in AE (subject to the ability to opt-out). As such, for employers that operate a scheme with voluntary membership, the employer may also need to operate AE separately for employees that decline membership of the scheme.
Employers are likely to face several administrative and technical challenges if operating AE in parallel to their existing scheme. For example, as a fundamental point, employee contributions to schemes are deducted from net pay whereas in the AE system deductions are planned to be made from gross earnings. The calculation of contributions will also be distinct as the AE Heads of Bill envisages calculation of contributions on the basis of gross earnings (defined to include notional pay and share-based remuneration) whereas most defined contribution schemes, in our experience, calculate contributions on the basis of basic salary. Employers are therefore likely, in due course, to at least consider amending existing schemes to meet the threshold for Qualifying Schemes in order to avoid operating AE in tandem with a separate scheme.
The next stage in the AE legislative process is for draft legislation, in the form of a Bill, to be published. Draft legislation will bring further clarity to Ireland’s AE proposals however, in the meantime, employers should continue to monitor developments and progress early stage plans/work programmes for AE compliance in due course.
Contributed by Jane Barrett