Law & Regulation
Auto Enrolment Pension – What it means for CPA Members by Justin O’Gorman
Auto Enrolment Pension –
What it means for CPA Members
by Justin O’Gorman
Over the last number of years, there have been various attempts to introduce some form of mandatory pensions for workers in Ireland. Up until 2022, these attempts have never progressed past reports and recommendations. There has always been a reason for delaying the introduction of the scheme.
This situation has now changed with the commencement of an Auto-Enrolment arrangement pencilled in to start in the first quarter of 2024 (although there appears to be some slippage with this date). The Minister for Social Protection is aiming to have the necessary legislation in place this year with 2023 seeing the implementation of the necessary IT systems and organisation in place and the potential for the initial enrolments of members by early 2024.

This new Auto-Enrolment Pension will have implications for workers and employers alike and therefore, it is important that employers know what their responsibilities will be in the months ahead.

The new Auto Enrolment Pension will be overseen by a new body known as the Central Processing Authority or CPA – an “interesting” acronym when one takes into account the people reading this article! – for short. The CPA will be responsible for the operation, co-ordination, supervision and development of the system.

What is an Auto-Enrolment Pension
Basically, an Auto-Enrolment Pension will enrol every qualifying worker who is not a member of a pension into this new scheme. From that date onwards, they will be expected to make a contribution to this new pension and their employer will also be expected to make a contribution.

A qualifying worker will be one who is aged between 23 and 60, is earning over €20,000 per annum and is not already a member of an occupational or personal pension.

The Auto-Enrolment pension will be voluntary, but employees must ‘Opt-Out’ rather than ‘Opt-In’ to the arrangement.

The initial contribution rate that an employee must make is 1.5% of their salary. The employer must also match this 1.5%. In year 4, the contribution rate will increase to 3% from the employee and 3% from the employer. In year 7, the contribution increases again to 4.5% employee/employer and finally in year 10, the contribution rate increases to 6% employee/employer.

The State will also make a contribution to the scheme starting at 0.5% per annum and gradually increasing to 2% per annum by year 10.

The maximum employee salary that the contributions will apply to is €80,000.

a woman and man signing documents at a desk
What it means for CPA Ireland members
  • All employees over the age of 23 and earning more than €20,000 per annum will now have access to an occupational workplace pension.
  • CPA employers will not need to establish a pension themselves; it will be done centrally.
  • CPA employers will need to ensure that their payroll process is able to calculate and remit both employer and employee contributions to the new Central Processing Authority (CPA).
  • CPA employers will be required to match members contributions up to an eventual 6% per annum subject to a maximum earnings threshold of €80,000.
  • CPA employer contributions will be deductible for tax purposes.
  • CPA employers who fail to implement a payroll instruction for enrolment and/or deduct and remit contributions as required face administrative penalties initially and are open to prosecution as a criminal offence if they continue to refuse to co-operate with the new scheme.
What it means for employees
  • All employees will have access to a defined contribution workplace pension.
  • The scheme will be voluntary but will operate on an ‘opt-out’ rather than an ‘opt-in’ basis.
  • Once an employee is 23 and earning over €20,000 per annum, they will be enrolled in the scheme.
  • An employee can opt-out of the scheme at the end of a minimum membership period – during the 7th and 8th month of membership and on each occasion that the contribution rates increase in the first 10 years. If an employee opts out on the first occasion that they can do so, they will receive a refund of the contributions they made during the previous 7/8 months.
  • If an employee opts out of the pensions, employer contributions paid to date are not refundable. These contributions remain the property of the employee.
  • If they opt out after an increase, they will only receive a refund of the increased amount they have paid rather than the contributions paid at the preceding rate.
  • Employees can suspend their participation at any stage but will not receive a refund of contributions paid.
  • Employees will be automatically re-enrolled 2 years after an ‘opt-out’ or a suspension of contributions.
Timeline for Introduction of Auto Enrolment
  • Establish the Central Processing Authority on an administrative basis – Q2/Q3 2022
  • Legislative Heads of Bills drafted and Govt. Approval – Q3/Q4 2022
  • Legislation enacted – Q3 2023
  • Central Processing Authority organisation established on statutorily independent basis –Q4 2023
  • Completed development/procurement of initial IT System/Infrastructure – Q4 2023
  • Procurement of Investment Managers completed – Q4 2023
  • Commencement of Automatic Enrolments – Q1 2024

As already mentioned, there has been slippage on the above dates and therefore it may be later into 2024 before the Auto Enrolment arrangement starts but there definitely appears to be a greater determination this time for this arrangement to be established.

Ireland is the only OECD country without some form of mandatory pension and with over 750,000 employees having no access to any form of private pension; this is a situation that can’t be tolerated much longer due to the rising pressure on the State Old Age pension.

Whilst there may be delays to the start of the arrangement, it would be incumbent on every CPA Ireland member to undertake an exercise to see how they will be affected from a monetary perspective.

Don’t forget, every employee between the ages of 23 and 60 earning over €20,000 per annum is eligible for enrolment.

For an employer with 5 employees in this category with a total wage roll of say €150,000, there will be an additional €2,250 outlay in years 1,2 and 3, increasing to €4,500 for years 4,5 and 6, €6,750 in years 7,8 and 9 and finally €9,000 per annum thereafter from year 10.

And don’t forget, it’s not just CPA Ireland members affected by this legislation. It is important that you have conversations with your clients to ensure that they are prepared for legislation as well.

After years of talks and reports, an Auto-Enrolment pension now appears inevitable and those employers/employees without a pension will be affected by this new arrangement.

Rather than wait for the deadline to come around for the establishment of this new scheme and the issues that may occur with any last-minute implementation of same, you could take steps now to set up a pension for your employees and be ahead of the curve in this regard.

Here in JDM Insurances, we would be delighted to speak with any CPA.Ireland member who would like to look at the whole area of pension provision in greater detail.

Headshot of Justin O'Gorman
Justin O’Gorman
QFA, RPA, APA (Personal & Commercial General Insurance). Qualified Financial Adviser, Retirement Planning Adviser. Accredited Product Adviser. JDM Insurance Services LTD