Auto-Enrolment: We have heard lots about the new initiative by the Government to help employees who do not have pension schemes through their work. As we all know, the State contributory Old Age Pension will not be sufficient for a comfortable retirement. This is why so many people have savings, either through Personal Pensions, PRSAs and Occupational Pension Schemes, which are provided by their employers.
Picture: Heather Humphreys, Government Minister responsible for Auto-Enrolment (Credit: RTE)
Action: As part of a plan to include those who have not set up their own pensions, and to include employers who do not have a pension scheme for their staff, the Government has started the Auto-Enrolment Pension Scheme. This will capture all employees over 23 years old who earn more than €20,000 per annum.
Tax Relief: The scheme offers a government top-up of €1 for every €3 of after-tax income from the employee, along with a mandated €3 from the employer. This is starting at 1.5% of income, rising to 6% (from both Employees and Employers) in time. The government contribution is equivalent to a Tax Relief of 25%, which in our view is a good boost for 20% Taxpayers, but not for 40% taxpayers.
In an environment where 40% taxpayers seem to be carrying the burden of many benefits to the greater population, it looks to us that we will also be subsidising the pension benefits of the lower rate taxpayers also.
There is an Alternative: We are encouraging Employers to have private Occupational Schemes set up PRIOR to the launch of Auto-Enrolment. This will remove the company from being forced to implement an Auto-Enrolment scheme for its entire workforce. (*non-members of a Private Company Pension Scheme may still be liable to join the Government Scheme). We at Clevermoney are making arrangements for access to very cost- and time-effective Pension Schemes for small and medium sized companies, including Master Trusts and PRSA’s.
With these Schemes, 40% taxpayers will continue to receive tax relief at 40% where they qualify. This will mean for a contribution of €100 into a private Company Pension, it will only cost the employee €60, where the same figure would be €75 in the case of Auto-Enrolment. If an employee paid in €60 equivalent net pay into both schemes, the difference at retirement (for a 35yo, retiring at age 65, and based on a growth rate of 3.5%) would amount to nearly €30,000. Imagine how big the difference would be with a larger payment? We cannot allow the Government, and our inaction, to short-change our valuable staff.
Timescale: As nearly 35% of the Irish Workforce of 2.2 million (figure excludes self-employed), this will mean a LOT of work. Both for the Auto-Enrolment Scheme, but especially for those Employers who want to do right for their important staff and ensure they have access to the better schemes for their valuable staff.
How to Act: Talk to your Clevermoney Consultant asap about setting up an Appointment to put things right. https://clevermoney.ie/contact
Auto Enrolment Ireland – what you need to know:
There are an estimated 750,000 employees (excluding Self-employed) in Ireland who earn more than €20,000pa and are not members of a Company Pension Scheme.
The Government top-up to the scheme will be equivalent to Tax Relief at 25% (€1 for every €3 of after tax income deducted from the employee)
If you are a 40% Taxpayer or have staff who are 40% taxpayers, you will NOT get Tax Relief at 40% through Auto-Enrolment
The Government sponsored Auto-enrolment Scheme is set to begin in the second half of 2024.
ALL employees earning over €20,000pa and aged over 23 will be automatically included in Auto-Enrolment. Employees will be able to opt out individually but will be automatically re-enrolled again in 2 years’ time.
Employees who are members of a Scheme PRIOR to the start of Auto-Enrolment will not be required to change. Those who have chosen not to join their company schemes are likely to be included in Auto-Enrolment, although they may avail of a 2 year opt-out.
Employer Contributions will start at 1.5% of employee salary, and is set to rise to 6% of salary over time.
The average annual payment into a company pension scheme (according to Irish Association of Pension Funds) is 11.1% of Salary per employee, with 5.7% paid by the Employee and 5.4% by the Employer. It is recognised that this is not a figure which would be enough to sustain a very comfortable retirement, especially if joined at a later stage in life.
Here is a link to the Government site where you can get more information on Auto-Enrolment: https: //www.gov.ie/en/campaigns/0ab04-automatic-enrolment-for-pensions-hub/#:~:text=What%20auto%2Denrolment%20is,state%20pension%20when%20they%20retire.
