Is your company ready for auto-enrolment?

Starting early in 2024, auto-enrolment mandates that eligible employees are enrolled in the scheme which is designed to help them save for retirement.

As an employer, it’s crucial you understand your responsibilities because failure to meet the State’s requirements can result in penalties and even prosecution.

In this blog post, we will address the top frequently asked questions from employers about auto-enrolment and guide you on what steps you need to take to get ready for this important change.

* There is still time to prepare for auto-enrolment, so don’t hesitate to seek expert advice and guidance from the Hennelly Finance team on 091 670 123, or email us at [email protected].

What is auto-enrolment?

Auto-enrolment is a government initiative to encourage employees to save for retirement by automatically enrolling them in a workplace pension scheme.

The scheme applies to employees who meet the eligibility criteria and do not contribute to a Defined Contribution (DC) pension scheme.

When will auto-enrolment begin?

Auto-enrolment is scheduled to begin in the first quarter of 2024.

What is required of employers?

Employers will have certain responsibilities under auto-enrolment, including facilitating the enrolment process for eligible employees, deducting pension contributions from their salaries, and making employer contributions as required.

Employers will also need to ensure compliance with regulatory requirements and provide necessary information to employees.

How will the scheme work?

Employers will need to match their employees’ contributions to the auto-enrolment scheme.

When the scheme begins in 2024, a contribution of 1.5% will be required to be made by both the employee and employer.

This will be accompanied by 0.5% State contribution (equating to €1 for every €3 contributed by the employee).

The scheme will see contributions increase every three years by 1.5% from both the employee and employer.

By year 10, the total annual contributions will reach 14% made up of 6% each from the employer and employee alongside a further 2% contribution from the State.

Employer and State contributions will be capped once earnings hit €80,000 per year.

What can employers do to get ready for auto-enrolment?

Employers should ready themselves for auto-enrolment by ensuring their payroll department can calculate and pay the appropriate employee and employer contributions to the Central Processing Authority.

Are employer contributions tax deductible?

Yes, employer contributions will be deductible for corporation tax purposes.

What happens to employers that do not implement auto-enrolment?

The State places the onus on the employer to ensure eligible employees are enrolled in the scheme.

If you fail to do so, penalties and prosecution may apply.

How will auto-enrolment affect existing pension schemes offered by employers?

Existing pension schemes offered by employers can continue alongside auto-enrolment.

Employees who are currently members of an employer scheme will not be enrolled in the new scheme.

How does auto-enrolment compare to an existing employer pension scheme?

Generally speaking, auto-enrolment offers less flexibility for member contributions, death benefits, retirement age and fund choice.

From a taxation perspective, it is also less attractive to higher income earners.

For example, while the State doesn’t contribute to DC pensions as is proposed for auto-enrolment schemes, DC pension members pay no income tax on the contributions they make, up to a certain limit.

A DC pension member paying tax at the top rate of 40% can claim back at the same rate, meaning the State will give back €40 for every €100 contributed to the pension.

While this is more than the 33% State contribution under the auto-enrolment scheme, people that pay tax at 20% marginal rate will receive the equivalent of €20 back from the State for every €100 they contribute, which is less than offered to people enrolled in the auto-enrolment scheme.

There are a number of other advantages to having a DC pension such as the ability to make a lump sum contribution before the 31 October tax deadline each year, which allows the member to claim tax back at their marginal tax rate.

Lump sum pension contributions will not be available under the auto-enrolment scheme.

DC members can also retire as early as 50, while auto-enrolment funds are locked until age 66 (and this may change depending on the State’s approach to raising the retirement age).

DC pensions also offer a wide range of investment choice, while auto-enrolment schemes will offer just four options which are chosen on behalf of the scheme member.

DC pension holders also have much greater access to advice and guidance available from an expert in face-to-face or video meetings.

Unusually, there is no indication that guidance or advice will be made available for members of auto-enrolment schemes at this time.

Regardless of the differences between auto-enrolment and employer pension schemes, it is important to note that employer schemes demonstrate the willingness of employers to support employees’ financial wellness through tax-efficient benefits.

Research shows employee benefits schemes contribute to a healthier, happier and more productive workplace that impacts an organisation’s bottom line.

What support will be available to employers for implementing auto-enrolment?

The government and relevant authorities are expected to provide guidance and support to employers for implementing auto-enrolment.

This may include detailed information, educational resources, and tools to help employers understand their responsibilities and comply with the regulations.

Employers can also access detailed support from Hennelly Finance.

Get in touch with us today to talk to us about your requirements on 091 670 123 or email us at [email protected].