The rate of secondary pension contributions will depend on the scheme you have chosen, so if you have decided to use Your Island Pension (YIP) or another scheme that follows the Minimum Contributions these will gradually increase until you are paying 3.5%.
As an Employer you can determine the level of Employee and Employer Contributions you wish to offer as part of your overall remuneration package. To comply with your secondary pension obligations, you must offer at least the minimum contributions.
The percentage used to calculate the secondary pension contributions will depend on the scheme you have set up. If you have chosen a scheme that is using the Minimum Contributions or you are using YIP, as time goes on the percentage will increase until you are paying 3.5%. The table below shows the percentage rate that will apply each year from the implementation of the Law. Note if your Operative Date is not until 2026, then the Minimum Contributions on starting will be 1% for Employers and 1.5% for Designated Employees and Employees.
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 |
Employer | 1% | 1% | 1% | 2% | 2% | 3% | 3% | 3% | 3.5% |
Employee | 1% | 1% | 1.5% | 2% | 3% | 4% | 5% | 6% | 6.5% |
Overall | 2% | 2% | 2.5% | 4% | 5% | 7% | 8% | 9% | 10% |
How do we calculate the contributions?
- The calculation of Earnings you need to use for the contributions is the same one you would use to calculate the social security contributions. Further information can be found in the Revenue Service Employer Guide. These will include commission, bonuses, overtime payments and other such remuneration, for example where tips are collected by the Employer and shared out the value must be included in the gross Earnings. If tips are received directly by an employee from the customer, they do not need to be included for secondary pension contributions. The contributions should be calculated based on all the Earnings up to the Upper Earnings Limit and this will include any Earnings below the Lower Earnings Limit. The period of calculation will either be weekly or monthly depending on how you pay your workforce, however you will need to speak to your Pension Provider regarding the frequency and method of paying these across to them.
When do we start deducting the contributions?
- The contributions should be deducted when you Enrol your Designated Employee. If you have opted to defer their membership the contributions will start after the end of the defer period and are not backdated to their first day of employment.
- You will need to include the date the contributions commence on the Notice you give your Designated Employee when they start work. If you have chosen to defer enrolling them you will need to let them know when they will be enrolled into the scheme. You have up to 3 months that you can defer this but once you have reached 3 months employment you must enrol them immediately and start contributions from the date they are enrolled.
When do we pay the contributions?
- The Pension Provider may give you deadlines for making the contribution payments because of their own investment deadlines. It is very important to make sure that you understand what your Pension Provider requires from you and when you need to do it.
Who do we need to tell about the contributions?
- You will need to provide confirmation of the status of the scheme being used, the amount of pension contributions that you, and your Designated Employee or Employee has paid, and whether any of your Designated Employees have opted out, to Revenue Service on a quarterly basis. If you use Returns Creator this will be updated to incorporate the information you need to provide.
What happens to the contributions?
- You and your Pension Provider will need to discuss what happens to the pension contributions during the first 6 weeks of contributions being deducted from your Designated Employee's pay. These contributions might not be invested straightaway, and this will depend on the pension scheme you have set up.
- If you have made your pension scheme compulsory in your contracts of employment, your staff won't be able to opt out. If the scheme isn't compulsory, they will be able to opt out of your pension whenever they wish, and you will be required to Enrol them back in after 3 years.
- If your Designated Employee opts out in the first 6 weeks of being enrolled both of you will have the contributions returned to you. When a pension pot is invested the value of it can go up and down, as you must both receive back exactly what was paid in, your Pension Provider is allowed to decide what happens to the contributions during those first 6 weeks. Your Pension Provider may request that you retain these funds for this 6-week period, at which point the Pension Provider will receive the funds from you and invest them. Alternatively, they may be happy to accept the contributions in line with their usual deadlines, if this happens, they can decide to invest these differently during that time instead of using their normal investment options. You will need to discuss this with your Pension Provider to make sure you understand what they require you to do.
- If your Designated Employee asks to opt out after 6 weeks of being enrolled, they can opt out of the scheme, but neither of you will receive the contributions back and these will remain invested in their pension pot.
What happens if our Designated Employee is absent from work?
- If your contracts of employment do not specify the pension scheme and contribution arrangements and your Designated Employee is receiving earnings above the Lower Earnings Limit you should continue to pay the Secondary Pensions Contributions and make the deductions from their pay as you would if they were at work. Information about Lower Earning Limits can be found on our pages on Social security contributions.
- If your Designated Employee is not receiving any pay, no deductions can be made. You would be under no obligation to make the Employer contributions if this happens, but if you wish to continue these as part of your remuneration package you would need to speak with your Pension Provider about how to do it.
- Your Designated Employee may decide to opt out of the pension during their period of absence especially if it is likely to be for a long time, for example if they are taking an extended period of unpaid parental leave. If your Designated Employee opts out of the scheme there is no requirement for you to pay the Employer contributions during this period. Your Designated Employee can opt out at any time and this will be acceptable, they would then be able to opt back in again when they return to work. Further information on opting out and opting in can be found here.
