The Irish government has published its automatic enrolment retirement savings system bill 2024 which paves the way for 800,000 workers to be brought into a pension scheme - but it differs significantly from the UK's version.
The bill, which will shortly be brought to Ireland's parliament the Oireachtas, will allow employees aged between 23 and 60 years old, who earn more than €20,000 a year and who are not already paying into a pension scheme, to be automatically enrolled.
Contributions made by the employee will be matched by the employer and topped up by the state.
For example, for every €3 put in by the employee, the employer will also contribute €3, and the state will contribute €1.
Starting in 2025, employees will contribute 1.5 per cent of their gross earnings, which will be matched by their employer, and topped-up by the state.
These rates will gradually increase every three years until reaching a maximum contribution rate of 6 per cent per employee, 6 per cent per employer, plus 2 per cent from the state from 2034 onwards.
This differs from the UK system where employers must pay at least 3 per cent and the employee the remaining 5 per cent.
Kate Smith, head of pensions at Aegon, said while on the surface Ireland’s auto-enrolment pension system may look quite similar to the UK auto-enrolment, there are many differences in the detail, including higher pension contributions.
She said: “As in the UK, employees, employers and the state will all contribute to Irish employees’ auto-enrolment pensions but in different proportions. Unlike in the UK, employers will match their employees contributions starting at 1.5 per cent of gross earnings phased in over 10 years to a 6 per cent equal contribution.
“While the state will add £1 for every £3 saved by the employee, meaning every pension saver benefits from the same amount. In the UK the state top up, or tax relief, is linked to an individual’s marginal tax rate.
“In the UK, contributions were also phased in over a number of years to help employees and employers get used to paying these amounts.”
One key difference is that contributions appear to be fixed for the auto-enrolment population, so employees won’t be able to pay less or more than the set rateKate Smith, AegonSmith added a big difference in the UK is that auto-enrolment contributions have stuck at 8 per cent of a band of earnings after almost 12 years of auto-enrolment.
Whereas in Ireland, employees will benefit from a much more ambitious 14 per cent contribution in only 10 years based on gross earnings, with no salary offset. In the UK there are plans to remove the offset some time in the mid 2020s.
The UK’s auto-enrolment system also captures more people.
“In Ireland eligible employees are automatically enrolled into their employer’s chosen workplace pension scheme between the ages of 23 and 60 once they earn over 20,000 euros a year,” Smith said.
“The scope of the UK’s auto-enrolment system is much wider than this as it includes employees between ages 22 and State Pension Age (currently age 66) and who earn over £10,000 in a single job, allowing many more people to benefit. And there are plans to reduce the minimum age to 18, again at some point in the mid 2020s.”
The opt-out rather than opt-in premise is the same for both systems however, again, there are changes here.
“Similar to the UK, employees will have the opportunity to opt of pension saving, but only after six months, whereas in the UK the opt-out window is much shorter, at one, with all contributions ceasing if the employees opts out or suspends their contributions,” Smith said.
“One key difference is that contributions appear to be fixed for the auto-enrolment population, so employees won’t be able to pay less or more than the set rate. Auto-enrolment contributions can be paid into the same account if employees move jobs, rather than building up a multitude of pensions as in the UK.”
New body set up
Ireland is the only country in the OECD that does not yet operate auto-enrolment or a similar system as a means of promoting pension savings.
The Irish government will also set up a state body, the National Automatic Enrolment Retirement Savings Authority, to administer the scheme.
It said this body will “act in the best interests of participants, collect contributions, arrange for the investment of contributions, manage participant accounts that will be accessible through an online portal, and facilitate the payment of savings at retirement”.
Ireland's minister for social protection, Heather Humphreys, said: “It is imperative that we take this initiative now while we have the opportunity.
“We have been talking about introducing a new workers’ pension for decades and we are finally on the brink of achieving it.
“With the support of my colleagues in the Dáil and the Seanad, I intend to bring this legislation to enactment as quickly as possible, and the first workers enrolled in January 2025.”
amy.austin@ft.com
