How much do we need to pay?

The rate of 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 will be 1% for employers and 1.5% for employees. 

Share dividends that are paid by a private company or an associated company to its employees are classed as earnings for contribution liability. If the payment of the dividend causes the gross earnings to exceed the upper earnings limits, the dividend value would be apportioned over the period to which the dividend relates.

Returns Creator has been updated and the secondary pensions section is live to collect details of both employee and employer pension contributions.

• 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's Guide [542kb]. 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.
  • The secondary pension contributions for Voluntary Employees is a percentage of their earnings. They will only include an employer payment (based on a percentage of your employee's earnings) if you have chosen to include this as part of your remuneration package. These contributions need to be paid directly to your pension provider and you will need to speak to your pension provider to find out the method of payment and how often you need to do it.

• Do Voluntary Employees requesting to join the scheme pay a different level of contributions?

  • If your Voluntary Employee has requested to join the scheme the contribution rate must be at least the same as the minimum employee contributions. You don't need to pay the employer contribution but may choose to do so as part of their remuneration package. If you offer employees a percentage rate that doesn't match the rates used for Designated Employees, you will need to speak to your pension provider to work out if this will be practical for your scheme. You will also need to make sure it is not discriminatory if you only offer certain options on a case-by-case basis or specific groups of your workforce.
  • If you allow your employees to pay an amount that is different to your Designated Employees, you will need to understand how this will work in practice and discuss with your pension provider. You will need to do what works best for your organisation and bear in mind that an employee's circumstances could change, and they may become a Designated Employee. If this happens you will be obliged to enrol them into the scheme and deduct at least the minimum employee contributions from their pay. As an employer you can choose a higher level of contribution as part of your remuneration package.

• When do we start deducting the contributions?

  • The contributions should be deducted when you enrol your employee.
  • For Designated Employees, 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.
  • When you issue a Notice to your Designated Employee it will include the date the contributions will commence. 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.
  • For Voluntary Employees, you will need to enrol them within 1 month of their request, or within 3 months of their last opt out, whichever is later.   

• 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 employee has paid 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 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 employees 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.
  • If your 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 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.
  • The same rules will apply to any Voluntary Employees who request to join your scheme. However, the employer contributions will only apply if you have decided to voluntarily pay these for your employees.

• What happens if our employee is absent from work?

  • Subject to your contracts of employment, if your 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 the social security contributions page.
  • If your employee is not receiving any pay, no deductions can be made. If you have chosen to make an employer contribution, you would be under no obligation to make the employer contributions if no deductions can be made from their earnings. 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 employee may decide to opt out of the pension during their period of absence especially if it is likely to be for a longer period, for example if they are taking an extended period of unpaid parental leave. Your 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 in can be found in the Opting in and out page.

• We thought our employee was going to earn above the lower earnings limit, but they aren't what do we need to do?

  • If they are earning below the lower earnings limit you would leave them in the pension scheme, but you won't necessarily have to deduct or pay contributions for them. You will need to check your contract of employment carefully, as although you won't be obliged to make the deductions/payment of contributions under the Secondary Pensions Law, you might be breaching employment law if you don't.  
  • If you are satisfied that there is nothing in the contract obliging you to make the contributions, you might want to speak to your employee to find out whether they want to have the contributions deducted from their pay. Your employee may want you to continue making deductions from their salary and there would be no problem in you doing this if they do. Although you won't be obliged to make the employer contributions under the Secondary Pensions Law you might want to pay these as part of your remuneration package.

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