Historic progress on Automatic Enrolment - Minister Humphreys
- Published on: 10 October 2022
- Last updated on: 15 October 2022
- Government has approved General Scheme of Auto Enrolment Bill
- Heads of AE Bill now referred to Joint Oireachtas Committee for Pre-Legislative Scrutiny
- AE will include matching employer contributions and a State top-up
- for every €3 saved by a worker, a further €4 will be credited to their savings account
- AE train is on the tracks and leaving the station – Minister Humphreys
The Minister for Social Protection, Heather Humphreys, has announced government approval of the General Scheme of the Automatic Enrolment (AE) Retirement Savings System Bill.
Minister Humphreys has now referred the General Scheme of the Bill to the Joint Oireachtas Committee on Social Protection for Pre-Legislative Scrutiny.
The announcement marks historic progress on the delivery of an Automatic Enrolment System in Ireland. The new system is designed to simplify the pensions decision for workers and make it easier for employers to offer a workplace pension.
Under Auto Enrolment employees will have access to a workplace pension savings scheme which is co-funded by their employer and the State. A key feature of the system is that although participation is voluntary, it operates on an ‘opt-out’ rather than an ‘opt-in’ basis.
In order to encourage workers to participate, people who remain in the system will have their pension savings matched on a one-for-one basis by the employer. The State will also provide a top-up of €1 for every €3 saved by the worker. This means that for every €3 saved by the employee, a further €4 will be invested by the employer and the State combined.
Minister Humphreys said:
“The delivery of Auto Enrolment has been a key priority for me since my appointment as Minister for Social Protection. Earlier this year I published the final design principles for the Automatic Enrolment Retirement Savings System for Ireland. Since then, a lot of work has been undertaken in progressing its implementation. This includes the drafting of the Heads of Bill which I am pleased to say have now been approved by Government. This represents a historic milestone in the journey towards enabling people who are currently without occupational pension coverage to save for their retirement. After decades of talking about Auto Enrolment in this country, I am pleased to say the AE train is now very firmly on the tracks and leaving the Station ahead of its introduction in early 2024."
Key features of Auto Enrolment
- initially 750,000 workers will be enrolled into a new workplace pension scheme, which will grow significantly over time
- participation in the new scheme will be voluntary - workers will have the ability to opt-out or suspend participation for periods of time
- the Scheme will include matching employer contributions and a State top-up
- for every €3 saved by a worker, a further €4 will be credited to their savings account
The Minister added:
“The General Scheme has been drafted in line with the final design principles that I announced last March. I now look forward to working with the members of the Joint Oireachtas Committee on Social Protection, Community and Rural Development and the Islands as it carries out Pre-Legislative Scrutiny. This important work by the members of the Committee will contribute to the preparation of the Automatic Enrolment Bill, which I hope to introduce to the Oireachtas as soon as possible following completion by the Committee of their work."
Minister Humphreys concluded:
“People are living longer and healthier lives and through AE I want to ensure they can enjoy their retirement years with some financial security. I know for many people retirement seems a long way away and they think they have a lot of time before they need to think about a pension. Pensions are complicated and so we all tend to put it on the long finger – it’s something I’ll get round to next year or maybe even the year after.
“AE is a generational reform in the Irish pensions landscape. It will combat pension inertia by turning the present system on its head to one where people will have to consciously “opt-out” of supplementary pension coverage rather than “opting in”. It is intended not just to get people saving earlier but to support them in that saving process by simplifying the pension choices and importantly by providing for significant employer and State contributions as well.”
Notes
In March 2022 the government approved the final design principles for the auto-enrolment (AE) retirement savings system, in line with the Programme for Government commitment to introduce a pensions auto-enrolment system. The government’s decision provides for the AE system to be set up by the end of 2023, with enrolments commencing in 2024. The key features of the AE system’s design are as follows:
- all employees who are not already in an occupational pension scheme and who are aged between 23 and 60 and earning over €20,000 across all of their employments will be automatically enrolled
- AE will be gradually phased in over a decade, starting in 2024, with both employer and employee contributions starting at 1.5% of gross salary, and auto-escalating every three years, until reaching the maximum contribution rate of 6% from Year 10 onwards
- the employer’s contributions will match those of the employee and the State will also make a contribution at a rate of €1 for every €3 saved by the employee
- those who are auto-enrolled will have the choice to opt-out or suspend their contributions after six-months mandatory participation
- where a member opts-out or suspends their contributions, they will be automatically re-enrolled after two years, after which they may opt-out or suspend again after a further six-months mandatory participation
- a Central Processing Authority (CPA) will be established to manage the AE system. This body will do much of the administrative work and act in a custodianship capacity for participants
- commercial investment companies will compete through an open tender for the role of ‘registered provider’ and will invest contributions on behalf of AE members
- participants will have a range of savings funds to choose from. These will include a default fund for those who prefer not to choose as well as an alternative choice of funds for those who wish to make a more active choice
- drawdown will be aligned with the State Pension age
The AE system will complement the State Pension, which will remain the bedrock of the Irish pension system, providing retirees with a basic level of income and protecting them against pensioner poverty.
Under Standing Orders of Dáil Éireann relative to Public Business (Standing Order 174A), the government is required to provide draft heads of a bill/a General Scheme to the relevant Oireachtas Committee for pre-legislative scrutiny once the draft heads have been approved by Cabinet. The Standing Orders provide for a standard timeframe of eight weeks for pre-legislative scrutiny, after which the Minister may proceed to publish the Bill. The referral of the heads of a bill for the Automatic Enrolment system to the Joint Oireachtas Committee on Social Protection, Community and Rural Development and the Islands fulfils this requirement. Given the timeframe for the implementation of Automatic Enrolment, the Minister is working, in conjunction with the OPC, towards having an Automatic Enrolment Bill introduced into the Oireachtas in the early part of 2023.