Auto Enrolment is coming but I have a pension - what happens now?
Over the last number of weeks I have put up a good number of articles about Auto Enrolment.
And that's because it's one of the biggest changes to the pensions industry and to retirement funding for people in Ireland that I can remember and certainly in recent history.
What it is is that employees who aren't currently in company pension schemes will automatically be enrolled into one, and they have an option to opt out after six months, but it's estimated that it'll increase the retirement funding for 750,000 workers and employees in Ireland.
I've had a number of conversations with clients over the past few weeks, and one of the questions that came up was ‘We have a work pension in place or have a pension place so what happens then?’
Auto Enrolment is going to work in conjunction with the current pension system. If there are company pensions in place and they will continue as they are.
Auto Enrolment will be implemented where no company pensions are in place and will start with an employer contribution of 1.5% that will be matched by an employee contribution of 1.5%.
Both Employee and Employer contributions will incrementally increase to 6% each after 10 years.
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You'll have three scenarios where there might be a work or a pension in place: company pension, a company PRSA or a personal pension.
In a company pension there has to be an Employer Contribution as it is. So if Employee and Employer contributions are over 1.5%, nothing should change.
A company PRSA, and this is administered through payroll, can have just an employee contribution.
So in that instance, the employer will have to have a minimum of 1.5% contribution matched by the employee and that will go up to 6% each after 10?Years.
The last part is a personal pension, and that's where an employee is making their own arrangements separate to a company, and that instance you can opt out of?the Auto Enrolment scheme after six months, and you can continue to pay your own way.
With Auto Enrolment, there's a 1.5% Employer Contribution?and that will be matched in a company pension arrangement or company PRSA arrangement.
So I think in that instance is probably advisable to move towards a company related scheme if you have a personal pension.