The government has set out the initial features of its plan to create an automatic enrolment savings plan for employees to add to their pension entitlements when they retire.

The key features of the plan just unveiled cover such aspects as the target membership, contribution rates, policies on opting out and re-enrolling, administrative arrangements and organisational approach, and investment options.

Automatic enrolment will apply to current and new employees aged between 23 and 60, earning €20,000 or more per annum, while those earning less, or aged more than 60 or less than 23, will be able to opt in voluntarily.

That is, unless workers are existing members of a pension scheme or contract which meets prescribed minimum standards and contribution levels, in which case they will not be enrolled automatically in the new scheme.

As with the existing social insurance system, employers will be obliged to make a matching (tax deductible) contribution on behalf of the employee at a specified contribution rate, but limited to a qualifying earnings threshold of €75,000 (to be reviewed over time).

In Association with

The scheme will start with an initial minimum contribution rate (for employees and employers) of 1.5% for three years, which will increase by 1.5 percentage points every three years thereafter to a maximum of 6% at the beginning of year 10.

Opt Out Options

Once enrolled, members must make contributions for a minimum of six months before any entitlement to opt out kicks in, at which point they will have two months in which to decide to do so or to stay in the scheme. There’s also provision for a limited number of pauses — ‘savings suspension periods’ for members who wish to temporarily cease making contributions.

Anyone who does opt out will be compulsorily re-enrolled after three years off the scheme, with the same right to opt out again when six months of contributions have been made.In addition, early access to accumulated savings can be provided on the grounds of ill health and enforced workplace retirement.

On the administrative side, the government proposes to create a Central Processing Authority responsible for appointing a limited number of ‘registered providers’ to provide suites of retirement savings options, on a competitive basis via open tender.

This body will establish minimum standards for delivery of the service and the product features required of all providers, such as the number of investment fund options, service response times, and suchlike. Employees will be enrolled with the CPA immediately on taking up employment.

Employees — rather than employers — will be responsible for selecting a provider and a savings fund option. In the absence of any savings decision, the employee will be automatically allocated to the default fund of one of the registered providers.

Members will be entitled to transfer funds accumulated in the automatic enrolment system  between the savings products, and invested funds and scheme membership will follow the member when members change employments.

Fundamental Reform

The government says that the CPA will set annual administrative, management and investment charges of no more than 0.5% of assets under management, to apply to all providers.

Social protection minister Regina Doherty  (pictured) described auto enrolment, due to be implemented in 2022, as a fundamental reform for the pensions system in Ireland.

Doherty said: “The figures are stark – two thirds of private sector workers don’t have any pension provisions made. While the State Pension will always be there for people, I want to ensure that the pensioners of tomorrow don’t just have enough to live but have a comfortable life in their retirement.

“My objective is to develop a system that first and foremost operates in the best interests of savers. This fundamental principle underlies the decisions that have been made today and will be made in finalising the design for automatic enrolment.”