On 30 October 2019, the Irish government published confirmation of key design elements of the new defined contribution Automatic Enrolment Retirement Savings System set to be introduced in 2022.

Confirmed automatic enrolment design features

Employees aged between 23 and 60, who earn at least €20,000 a year and are not already contributing to a workplace pension plan, will be automatically enrolled. Those earning less than €20,000 a year, and those aged under 23 or over 60 can opt in to the system.

Employees will initially contribute a minimum of 1.5% of qualifying earnings, increasing by 1.5% every 3 years thereafter to a maximum of 6% at the start of year 10.

Employers will be required to make a matching (tax deductible) contribution to the plan. Employer contributions will be limited to a qualifying earnings threshold of €75,000, which will be reviewed from time to time. Potential financial incentives or contributions from the state are still being discussed.

Contributions during the first 6 months of membership will be compulsory. Employees can opt-out of the system in a 2-month opt-out window in months 7 and 8. Employees who opt out during this opt-out window will receive a refund of their personal contributions paid up to the point of opt out. Additional opt-out windows will be available 6 months after each increase in the mandatory contribution rates.

Employees who opt out will be re-enrolled after 3 years, but will have the ability to opt out again.

A panel of Registered Providers will be run by a new state entity called the Central Processing Authority (CPA). The CPA will seek to set annual administrative, management and investment charges of no more than 0.5% of assets under management. This charge cap will apply to all providers.

Employees will be automatically enrolled with the CPA by their employer when they start employment. Employees (rather than employers) will be responsible for selecting a provider and a savings fund option for their individual retirement savings account. If the employee does not make a choice, the CPA will allocate them to the default fund of one of the Registered Providers. The system will operate on a “pot-follows-member” approach, so the employee’s auto-enrolment pension contributions will be collected in the same retirement savings account (or “pot”) even when they change jobs or if the employee has multiple employers.

Each Registered Provider will be obliged to offer a similar range of “standard choice” savings fund options with an appropriate risk profile and including a default fund. These investment fund options may incorporate a “lifestyle” or “target date fund” investment approach, reducing the investment risk the member is taking as they approach their retirement date.

The Irish government notes that while these elements have been settled on in principle, it is possible that they may be subject to some change as work progresses in finalising the approach to other design elements, implementation of the system and development of the necessary legislation.

Next steps

Work continues in a number of areas:

• Proposals for the scope and role of the CPA were scheduled for submission to government by the end of 2019.
• Proposals on the nature and scope of the Registered Providers, the investment framework and funds to be offered by the Registered Providers (including design of default fund), and the decumulation and pay-out phase are scheduled to be submitted to government for consideration in the first quarter of 2020.
• Further work on the state financial incentive for the auto-enrolment system is being carried out and a set of options on how to proceed will be brought to government in the first quarter of 2020.

While timing is tight to implement the new auto-enrolment system by 2022, there is a suggestion that a phased implementation approach starting in 2022 may be taken. Proposals in this area are also being prepared and will be considered by the government before the auto-enrolment legislation is published. The Irish government’s timeline in their October 2019 update suggests the legislation is targeted for publication in 2020, so there is still much to be done and decided this year.

In the meantime, employers may wish to plan for the costs of auto-enrolment from 2022, and budget for additional pension contributions of up to 6% of qualifying earnings for employees who do not currently have a workplace pension plan.