Employers may need to run two pensions under auto-enrolment

Workers who have actively chosen not to join their employer’s existing pension scheme will be signed up to auto-enrolment when the scheme goes live.

However, they will subsequently be able to transfer to the schemes they have previously snubbed, according to officials from the Department of Social Protection.

The twin-track approach is likely to mean increased bureaucracy for many employers.

Legislation to establish compulsory workplace pensions was introduced in the Oireachtas this week, with Minister for Social Protection Heather Humphreys promising to have the new auto-enrolment regime in place early next year.

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The scheme is designed to provide private pension cover for people in companies that do not offer pension schemes, but it will also apply to workers who have chosen not to sign up for pensions available at their current employer.

For higher tax earners, that would mean them being forced into a pension scheme offering inferior tax advantages to what is already available to them. Existing occupational pension schemes offer tax relief of 40 per cent on employee contributions while the new parallel scheme will operate on €1 of Government money for every €3 put in by the employee. There are also lower limits on what will be paid into auto-enrolment compared to what occupational pension scheme rules allow.

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However, employers were assured on Thursday by department officials that workers would be able to transfer to their employer’s scheme at any time. Employers will not be able to force people to join existing schemes to avoid having to run both schemes in parallel.

It was separately confirmed that if an employee is making contributions to a personal retirement savings account (PRSA) funded purely on their own contributions, they will not be enrolled in the auto-enrolment scheme and so will lose out on the possibility of matching employer contributions.

At a briefing for members of Ibec’s Small Firms Association, department officials also clarified that, at least initially, workers will not be able to pay more than the 1.5 per cent worker contribution to boost their pension fund by way of additional voluntary contributions (AVCs).

And if they choose in that absence to pay AVCs to an employer scheme, their auto-enrolment scheme status will be suspended, meaning they will not be entitled to the matching employer contribution.

They also noted that while people will need to be aged between 23 and 60 and earning more than €20,000 to be automatically enrolled in the new scheme, they will continue to stay in the scheme even if their earnings subsequently drop below €20,000 per annum.

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