Employees who’ve previously opted out of their company’s pension plans will be automatically enrolled into the new pension scheme when it starts. Despite this, the Department of Social Protection confirms these workers can switch to the original pension plans they had shunned earlier. This dual-option method brings about additional red tape for a multitude of businesses. The compulsory workplace pensions law was proposed in the Oireachtas this week, aiming to implement the automatic enrolment system at the start of the following year, as per Social Protection Minister Heather Humphreys.
The plan intends to provide private pension coverage for individuals in businesses that lack pension plans, while also catering to employees who declined participating in their current employer’s pension schemes. For those in higher tax brackets, it implies getting drawn into a pension plan providing lesser tax benefits than what they presently have. Traditional occupational pension schemes offer a 40 per cent tax relief on employees’ contributions, whereas the new concurrent plan will match every €3 contributed by an employee with €1 from Government. Furthermore, the auto-enrolment will be subject to lower caps in comparison with regulations under the occupational pension scheme.
However, employers were given assurance on Thursday by the department officials that their employees could shift to the company’s plan at their will. It will be impossible for an employer to mandate joining the existing scheme to escape running both plans simultaneously. It was separately confirmed that contributions made by an employee into a personal retirement savings account, funded solely by their personal input, would not be included in the auto-enrolment scheme, thus missing the chance of employer-matching contributions.
Department officials also explained to Ibec’s Small Firms Association members in a briefing that, initially at least, employees will not be able to contribute beyond the 1.5 per cent worker contribution to augment their pension fund via additional voluntary contributions. Should an employee decide to make additional voluntary contributions to their employer’s scheme instead, their auto-enrolment status will be put on hold, thus forfeiting eligible matching contributions from their employer.
It was also observed that individuals must fall within the age range of 23 to 60, and have a minimum income of €20,000 to be automatically included in the new scheme. However, should their annual earnings decrease below the €20,000 threshold, their participation in the scheme will not be affected.