On 3rd April the Department Social Protection published further information on the new Automatic Enrolment retirement savings system.
AE will be implemented on a phased basis. Employee contributions will be matched on a ‘like for like’ basis by employer contributions. Employers and employees will be required to make initial contributions of 1.5% of gross pay at outset. In year 4 this will increase to 3%, in year 7 this will increase to 4.5%. Finally in year 10 contribution rates will increase to the maximum rate of 6% of gross pay.
Not only do employers need to review the long-term labour costs of AE, but they are also likely to face administrative and technical challenges.
Contributions will be fixed, and employers won’t be able to contribute less than the set rate.
Employer contributions will be capped at up to €80,000 of the employee’s earnings.
The state will provide a top-up to employee contributions at a rate of €1 for every €3 contributed, up to the €80,000 cap.
The Department of Social Protection have confirmed that employer contributions will be deductible for corporation tax purposes.
Employees who are enrolled will have to stay in the system for six months, but they will be free to opt out in months 7 and 8 if they so wish. All contributions – from the employee, the employer and the State – will cease when an employee opts out.
Interestingly employees who opt out or suspend their contributions will be automatically re-enrolled after two years, once they are still eligible for the scheme.
AE has an intended commencement date of Q1 2024, however with so much work still to be done here at Provest we would not be surprised if the start date is pushed out to later in 2024 or beyond.
As the legislation progresses, the Department Social Protection will need to work closely with businesses to advise and help them prepare for the introduction of AE.
Payroll providers, in particular, will face an uphill battle preparing for the planned introduction of the new retirement savings system.