What Irish Employers Should Know About Occupational Pensions

Earlier this year, The Oireachtas Social Protection Committee recommended changes to the pension age in Ireland. The Committee’s recommendation was that the “cut-off age of 70 be replaced with 75 and that the enhanced pension would keep increasing until the individual starts drawing down their pension or reaches 75, in light of the fact that life expectancy has increased from 65 to 82 years old.”

The impact of this announcement, aside from the fact that people may be working until later in life, is that a broader conversation needs to be had regarding Irish pensions. More specifically, a conversation needs to be had on occupational pensions and the upcoming auto-enrolment scheme. Here, we look at both. 

 

Let’s begin by answering a common question: What is the pension (retirement) age in Ireland? At present, the retirement age in Ireland is 66 years of age. This is the qualifying age for all State pensions. 

 

According to The Pensions Authority, “occupational pension schemes, also known as company pension plans, are typically set up by employers to provide retirement benefits for members in the form of pensions, other taxable payments and tax-free lump sums within limits set by Revenue. Many pension schemes also provide death benefits payable to a member’s dependants on the death of a member.”

At present, there is no legal obligation on employers to provide occupational pension schemes for their employees. However, large businesses generally tend to have occupational pension schemes in place, although this isn’t quite the same when it comes to smaller businesses.

If you’re an employer who doesn’t have an occupational pension scheme in place, you must give your employees access to a type of pension plan known as a Personal Retirement Savings Account (PRSA).

There are various types of pension schemes, such as:

• Contributory: Both the employer and employee pay contributions towards the scheme.
• Non-contributory: Only the employer contributes towards the scheme.
• Funded: The most common type of pension scheme where contributions are put into a designated fund and benefits are paid from that fund.
• Unfunded: Benefits are paid out of current government funds.
• Defined benefit: The pension contributions an employee makes are set and the benefits they receive depend on the amount of the contributions they make.
• Defined contribution: Here, the benefit an employee is entitled to is established in advance.
• A hybrid of a defined benefit and defined contribution: This is when an employee can predict a certain amount of income, as in a defined benefit scheme. The remainder will be subject to defined contribution rules.

Now that we’ve covered occupational pensions, let’s look ahead to a new scheme employers have coming their way in 2024 ꟷ auto-enrolment.

 

Set to come into effect in late 2024, auto-enrolment is a pension savings scheme for certain employees who are not paying into a pension. These employees will be automatically enrolled in the scheme but will have the option to opt-out after six months.

A new Central Processing Authority will be set up to administer the auto-enrolment scheme which will see contributions come from the employer, employee, and government. Those who will be will be automatically enrolled are employees who are:

• Aged between 23 and 60.
• Not currently part of a pension plan.
• Earning €20,000 or more per year.

If an employee earns less than €20,000 per year or isn’t aged between 23 and 60, they can choose to join the pension plan if they’re not already part of a pension scheme. Regarding the maximum contribution, Citizens Information states that “both an employer’s and the government’s contributions are capped at €80,000 gross annual salary. This means for the first three years, the maximum amount an employer can contribute is €1,200 a year. This is because 1.5% of €80,000 is €1,200. The maximum amount the Government can contribute is €400 a year, which is 0.5% of €80,000.”

What this means is that, if an employee earns over €80,000, they can still contribute to the scheme. However, their employer and the government won't match their contributions on any income over €80,000.

Related Article: National Living Wage in Ireland: What Employers Need to Know

 

Managing pension contributions is one thing; managing payroll is another. 

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