Independent Tax Advice on Pensions and Retirement

Auto-enrolment Pension Scheme. Payroll. Retirement Pension. No Income Tax Relief. Employers, Employees and Directors

Today, 7^th October 2024, the Minister for Social Protection announced that the pensions auto-enrolment scheme will commence on 30^th September 2025. From that date, employers must automatically enroll eligible workers into a workplace pension scheme, as part of a Government initiative, aimed at boosting retirement savings.

Who is it for?

This government retirement savings system is for employees who are not already contributing into a pension scheme through their payroll. The Automatic Enrolment Retirement Savings Systems Act 2024 was signed into law on 9^th July of 2024 and a commencement order was signed on 30^th September 2024.  This scheme involves mandatory employer and employee making contributions into a pension fund, in addition to a Government top up.  As a result, with this new auto-enrolment scheme, most workers will now be entitled to:

(i) their own pension plus

(ii) the State Pension on retirement.

What is the Pensions Auto-Enrolment Scheme?

Under this new Act, the following apply:

• Employees will be automatically enrolled in this scheme if they are aged between 23 and 60 years. It’s important to keep in mind, however, that the employee can voluntarily opt out after six months.

• This auto-enrolment scheme will apply to every private sector worker in Ireland.  This is provided that the employee is not in what is termed “exempt employment.”

• The employee must earn more than €20,000 gross per year. For this purposes, gross pay includes allowances as well as non cash benefits.

• For employees earning less than €20,000 per year or who are outside the prescribed age range, they can opt in voluntarily.

• Contributions will be made by (i) the employee, (ii) the employer and (iii) the Government.

• The scheme will be managed by the National Automatic Enrolment Retirement Savings Authority.  This is under the supervision of the Pensions Authority.

• In situations where an employee previously contributed to a pension but has since stopped, that individual can be enrolled in the scheme.  This is provided they meet the relevant criteria.

• Employer AE contributions will not be taxed as a benefit-in-kind on the employee.

What is an “exempt employment”?

The scheme is aimed at employees who are not paying into a qualifying pension plan.  Therefore, an ‘exempt employment’ is deemed to be one where an employee or employer is already making contributions, through the payroll system, to any of the following:

(a) an occupational pension scheme,

(b) Personal Retirement Savings Account,

(c) a Retirement Annuity Contract or

(d) a Pan-European Personal Pension Product.

What are the Auto-enrolment contribution rates?

1. Contributions to the auto-enrolment pension scheme will be based on a set percentage of your wage/salary and deducted through payroll.

2. Employers must match their employee contributions.

3. The Government must match one third of the employee contribution.

 4. The Contributions will gradually increase over a ten year period.

5. The employee contributions will not qualify for income tax relief.

6. Contributions are capped at €80,000 of an employee’s gross annual salary/wage.  In other words, an upper annual limit of €80,000 applies to earnings.  No contributions are required on earnings exceeding this cap.  Employees earning more than €80,000 per annum can still contribute.  However, employer and Government contributions will not apply to earnings above €80,000.

Final Points

• As the Auto-Enrolment Pension Scheme operates throughout your career, you don’t have to do anything if you move jobs.

• In the event of the death of an auto-enrolled employee, their personal representative can apply to access the balance in the employee’s account, as part of their estate.

• An employee can suspend their contributions at any time.

• Directors who are deemed to be “self-employed” for PRSI purposes are not considered eligible to contribute to this Auto-Enrolment Pension Scheme.

• The Automatic Enrolment Retirement Savings Systems Act 2024 provides for a number of offences.  These sanctions range from fines of €5,000 to €50,000 and/or imprisonment, depending on the particular offence committed.

For further information, please click:

https://www.gov.ie/en/publication/c6d6a-auto-enrolment-your-questions-answered/?referrer=https://www.gov.ie/en/publication/01568-auto-enrolment-your-questions-answered-rol-draft/

https://www.irishstatutebook.ie/eli/2024/act/20/enacted/en/html

https://www.youtube.com/playlist?list=PLfOMyQE5RqGzeqOMKqB1M3KyOCtKU8bjk

With over thirty years of experience, Accounts Advice Centre specializes in delivering reliable and tailored payroll services to a wide range of clients.  This ranges from sole employers to large organisations. Our focus is on tax compliance while ensuring we meet the needs of each and every business, individual, employer and employee.  If you would like to discuss our payroll services, please contact us at queries@accountsadvicecentre.ie

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.