By: HUB’s EB Global Benefits Team

The UK is set to expand its automatic enrollment pension program, while Ireland is on course to introduce a new one. These changes aim to increase pension coverage rates, providing a financial safety net for retirees and potentially mitigating future pension crises. Employers need to be aware of these upcoming changes and start budgeting for their implementation.

AE Pension Coverage Extended in the UK

The UK's automatic enrollment pension legislation has been in effect for over a decade, requiring employers to automatically enroll eligible employees in workplace pension schemes. Currently, employees aged 22 to State Pension age earning over GBP 10,000 annually must be enrolled, with employers contributing. Employees of other ages have the right to opt in, but employers only contribute for those earning above GBP 6,240 per year.

Employers are legally required to contribute to these plans for eligible employees. The minimum contributions are set at 5% of Qualifying Earnings for employees and 3% for employers. Both parties have the flexibility to contribute more than their minimums, and employees may choose to contribute less if their employer contributes above the required 3%.

Recent reforms are set to expand coverage by lowering the entry age from 22 to18 (or even 16) and eliminating the lower qualifying earnings threshold of GBP 6,240.

The implementation date for these transformative changes will be finalized after a public consultation.

New AE Pension Scheme in Ireland

After more than 15 years of discussion, Ireland is finally introducing a mandatory auto-enrollment pension scheme for employees. The scheme’s implementation is expected in the second half of 2024, although there is skepticism surrounding the timing of the official rollout.

The new scheme will apply to employees aged 23- 60 earning an annual salary of at least EUR 20,000. Employers will be required to automatically enroll all eligible employees. Employees at other ages can opt voluntarily.

Employee contribution rates will start at 1.5% of gross annual salary, with employers matching this contribution. These rates will rise every 3 years by 1.5% until reaching 6% each by 2034. The government will also contribute at a rate of 0.5%, gradually increasing to 2%.

The maximum salary on which the mandatory contributions apply will be EUR 80,000.

After automatic enrollment for 6 months, employees have a 2-month window to opt out or suspend participation. Those who opt out or suspend will be automatically re-enrolled every 2 years.

While the 2024 implementation seems unlikely, the government has counseled employers to budget for the changes.

How this impacts you

  • Employers will be required to make mandatory contributions to their employees' pension plans, which can increase their overall labor costs.
  • Employers will need to establish and maintain workplace pension plans, adhere to the specific rules and regulations governing automatic enrollment, and potentially upgrade their payroll systems.
  • Employers must comply with the evolving regulations surrounding automatic enrollment, ensuring proper enrollment of eligible employees and timely contributions.

Next steps

  • Employers should proactively plan for the implementation of automatic enrollment, assessing their current pension arrangements and the potential impact on their labor costs and administrative processes.
  • Employers should communicate clearly and effectively with their employees about the automatic enrollment program, explaining the eligibility criteria, contribution rates, and options for investment choices.
  • Employers may consider seeking professional guidance from pension consultants or financial advisors to help them navigate the complexities of automatic enrollment and ensure compliance with the regulations.

If you have any questions, please contact your HUB Advisor. View more updates in our Global Benefits Directory.