Update on Auto Enrolment and the Finance Bill 2024 

On 10 October, Minister Humphries signed a commencement order to launch the new Auto Enrolment (AE) retirement savings scheme with effect from 30 September 2025. Below are some key points from the Minister’s announcement. 

• The new AE retirement savings system is to be known as “My Future Fund”
• The new AE supervisory authority, NAERSA, is to be established with effect from 31 March 2025 and will oversee the implementation of Auto Enrolment. 
• A major communications campaign will commence shortly to inform the public about the system and what it will mean for them
• Tata Consultancy Services, has been appointed to act as the Administrator of My Future Fund
• A tender will be issued shortly to appoint up to four investment managers to invest contributions for My Future Fund

The full announcement can be found here.

The Finance Bill 2024 also confirmed more details in relation to the taxation of the new Auto Enrolment system:

• Employee contributions to My Future Fund will not qualify for tax relief (the State top-up contribution, equivalent to 25% tax relief, is paid in lieu)
• Employer contributions to My Future Fund will be treated as a deductible expense for corporation tax purposes
• Income and gains from investments in My Future Fund will be exempt from tax
• At retirement, 25% of a participant’s fund will be available to be taken as a tax-free lump sum (subject to usual limits); the remainder will be subject to income tax under the PAYE system
• On death, the value of the deceased’s fund will be liable to income tax. Further clarity on this will be needed as this would be inconsistent with other pre-retirement pension products which allow some or all of benefits to be paid tax-free to spouses or dependents.
• Funds accumulated within My Future Fund will count towards the individual’s overall benefits for the purposes of the Standard Fund Threshold (SFT).

These are important clarifications which, following the passing of the Automatic Enrolment Retirement Savings System Act in July, give employers much greater certainty about Auto Enrolment. Employers now have a full year to prepare. Importantly, none of the previously announced core design features of the new regime have changed. Mercer’s view remains that for most employees, saving in an occupational pension plan will be a better total retirement benefits solution than My Future Fund.

For all employers, the task is clear: planning and preparation must start now to maximise the time available prior to commencement. Despite appearances, implementation of Auto Enrolment for employers with existing occupational pension schemes is not straightforward and will need to be fully understood to minimise complications. In addition, engagement with employees will be vital. Many employers have already begun to consider the details and their options. For those employers who have not started, it is important that they do so as soon as possible. 

There were a number of other pension-related changes made in the Finance Bill.  Some had been anticipated by the pensions industry, but some were unexpected.

Standard Fund Threshold (SFT)

The Bill confirms the announcements made by the Minister of Finance prior to and in the Budget in relation to the limits on tax-relieved pension funds.  

• The current SFT limit is set at €2 million but starting in 2026, it will be increased incrementally by €200,000 per year until 2029 (rising to €2.8 million)
• From 2030, the SFT will be increased in line with the average weekly earnings as published by the Central Statistics Office. In 2030, the SFT will be the higher of the 2029 SFT limit (€2.8 million) and the 2029 SFT limit adjusted to take account for wage growth from 2025 to 2029.  
• From 2031 onwards, it will be adjusted each year based on the difference in average weekly earnings from the previous year.

The delayed and incremental increase of the SFT creates complexities for SFT impacted employees retiring over the next 5 years, and for those employees who previously had opted out of the pension scheme but wish to opt back in. Mercer will be hosting a webinar for employers on Wednesday 23 October at 11am to discuss the impact of the SFT changes and considerations for employers.

Contributions to Personal Retirement Savings Accounts (PRSAs)

The removal of Benefit-in-Kind (BIK) on employer contributions to PRSAs in January 2023 meant that individuals could fund unlimited employer contributions (up to the Standard Fund Threshold) in a given year.  The Finance Bill 2024 has now amended the tax treatment of PRSAs again by capping employer contributions at 100% of an employee’s earnings under Schedule E.  Any employer contributions made in excess of the employee’s earnings will be liable to income tax.  The changes will come into effect on 1 January 2025 so it is likely individuals with the scope to fund/receive higher employer contributions will seek to maximise the existing rules before year end.

Unvested/Vested PRSA transfers

The Finance Bill 2024 closed off a loophole used by some individuals over the SFT limit to avoid paying chargeable excess tax.  Transfers from unvested PRSAs (PRSAs which have not been accessed) into vested PRSAs (PRSAs which have been accessed) will now be treated as a benefit crystallisation event meaning that these transfers will trigger chargeable excess tax in the future.

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