Kieran Coughlan: Are you ready for auto-enrolment? Key steps for agri-food employers

Auto-enrolment is a new scheme designed to ensure that most employees who do not currently have access to an employer pension scheme will be contributing toward their own personal pension fund, writes rural tax adviser Kieran Coughlan

If you have eligible employees — those not covered by these exemptions or a pension plan — auto-enrolment is obligatory.

If you are an employer, you may need to register for auto-enrolment ahead of January 1. 

Auto-enrolment is a new scheme designed to ensure that most employees who do not currently have access to an employer pension scheme will be contributing toward their own personal pension fund.

Employers who already provide an occupational pension scheme — either a dedicated employer scheme or access to PRSAs, RACs, or PEPPS, where employees receive payroll relief on contributions — do not need to register for auto-enrolment, provided all eligible employees have taken up the pension option.

In simple terms, if you have employees who are not covered by any pension scheme or contributions, you need to determine whether auto-enrolment is required.

Some employees are excluded from auto-enrolment, including:

• Self-employed directors registered under Class S PRSI;
• Employees earning under €20,000 per year across all employments; 
• Employees under 23 years of age; 
• Employees over 60 years of age.

If you have eligible employees — those not covered by these exemptions or a pension plan — auto-enrolment is obligatory.

Under the scheme, contributions are set at 1.5% of net pay from employees, matched by 1.5% from the employer and a 0.5% Government top-up.

For example, an employee with a weekly take-home pay of €700 will see their pay reduced to €689.50, with €10.50 contributed to their fund, matched by €10.50 from the employer and a Government top-up of €5.25, giving a total weekly contribution of €26.25.

Employers who fail to register or operate auto-enrolment risk fines and prosecution. With only a few weeks to go, employers may wish to consider setting up a private employer scheme as an alternative. 

There are advantages and disadvantages to either approach.

Auto-enrolment benefits:

• Contributions are automatically calculated via payroll software;
• No need to notify a pension provider about new employees;
• Payments are processed automatically with payroll.

The amount of pension contributions via auto-enrolment are (at least initially) set at 1.5% for employee and employer, whereas the contributions that can be made tax efficiently by an employee and employer under a private pension arrangement can be significantly higher.

There are very limited investment options under the auto-enrolment scheme, whereas the choices for a private pension arrangement offer massively more choice (albeit that does not necessarily mean a greater return). 

The options for accessing your pension pot are more restrictive with auto-enrolment, with employees usually confined to accessing their fund once they reach retirement age — greater options to access one’s pension pot earlier may exist for personal pension arrangements.

Employers are advised to consult an accountant or financial adviser to determine the best route, considering their circumstances. Decisions on the chosen approach should be made now to ensure readiness by January.

To register for auto-enrolment, an employer needs to use their ROS cert or get their agent to do so, and register online at myfuturefund.ie, by accepting the terms and conditions, privacy policy and providing contact details of the employer, and set up a variable direct debit in that is their preferred option for payment of contributions. Each person should obtain professional advice relevant to their own circumstances.