Understanding Auto-enrolment
Overview of implications for employers and employees
Auto-enrolment is a transformative initiative set to launch in Ireland on 30 September 2025. Its primary goal is to address the significant pension coverage gap and ensure a more secure financial future for Irish workers. Under this new system eligible employees will be automatically enrolled into workplace pension schemes.
What is Auto-Enrolment and why is it being introduced?
Auto-enrolment involves automatically enrolling employees into a pension scheme, with contributions coming from the employee, their employer and the government. The rules for auto-enrolment are set out in the Automatic Enrolment Retirement Savings System Act 2024. The initiative aims to increase pension coverage and savings among workers who do not currently have a pension. The aim is to reduce dependence on the state pension with the scheme supplementing the state pension but not replacing it. The system is designed to make saving for retirement more accessible and effortless, encouraging better financial preparedness among the Irish workforce.
All pension savings accumulated as part of auto-enrolment will belong to the employee and the employer and State will not have any claim or right. Employees will have accessibility at the retirement age of 66 years.
Eligibility criteria
To qualify for auto-enrolment, employees must:
- earn more than €20,000 annually,
- be aged between 23 and 60 years, and
- not be currently enrolled in a pension plan
Employees currently part of a pension plan are not eligible to join the auto-enrolment scheme. However, employees earning less than €20,000 annually, or not aged between 23 and 60 years, can choose to opt-in to auto-enrolment provided they are not already part of a pension plan. Employees who choose to opt-in must be treated the same as employees automatically enrolled.
Employees initially eligible to qualify for auto-enrolment and whose earnings drop below €20,000 annually, will continue in the scheme.
The eligibility of company directors for the scheme will depend on their PRSI class. Directors paying PRSI as an employee and who meet the eligibility criteria, will be enrolled. Directors who are self-employed will not be eligible.
Employees who are exempt from PRSI and income from pensions will not be assessed for eligibility.
Contribution structure
Contributions will be based on a percentage of gross earnings (i.e. all income included in the gross pay field on payroll will be assessable) and will be phased in over 10 years to make it manageable for both employees and employers. Employers will match employee contributions with the State providing a top-up contribution at the rate of €1 for every €3 paid in by the employee (equivalent to 25% tax relief).
Contribution rates will be fixed as outlined above, and it will not be possible to vary from these contribution rates.
Both the employer’s and the government’s contributions are capped based on a maximum €80,000 gross annual salary. An eligible employee earning more than €80,000 per annum can still contribute (at the relevant fixed rate). However, any such additional contributions by the employee will not receive matching funds from the employer or the government.
Tax and other implications for employers
Employers will play a crucial role by matching employee contributions and facilitating deductions from salaries. It is understood that employer contributions will be tax-deductible.
Employers will also need to ensure compliance with new administrative requirements, which may involve updating payroll systems and maintaining records of contributions. Employers will pay employee and employer contributions directly to a new state agency (further details under Administration and Oversight section below). It is anticipated that different modes of payment will be available, and employers will be able to set up payment via an employer portal. It is understood that any returns and payments will be operated through payroll.
It is understood that employers engaged in activity to encourage employees to opt out or halt contributions to the auto-enrolment scheme may face prosecution as well as incurring fines and penalties. Any withheld or underpaid contributions will be subject to interest charges.
Any existing pension schemes operated by employers will run in parallel to auto-enrolment.
The auto-enrolment legislation does not affect existing legislation and therefore employers will still have an obligation to offer access to a PRSA for employees who wish to avail of it.
Tax and other Implications for Employees
Employees will not be able to claim tax relief on their contributions to the auto-enrolment scheme. However, the State top-up is equivalent to 25% tax relief.
Following the introduction of auto-enrolment, it will be possible for employees to pay contributions to another pension scheme outside the payroll system and remain a participant in the auto-enrolment scheme. Other pension schemes will continue to qualify for tax relief, which can currently reach up to 40% depending on age and earnings levels.
Opting out
The auto-enrolment scheme will not be entirely mandatory, and there will be specific times that employees can opt out and may be eligible for a refund of contributions. This allows individuals to make choices based on their personal financial circumstances. Employers must provide clear information about the opt-out process and ensure employees are aware of their rights and options.
Firstly, an employee can opt out in the 2-month period immediately following the initial six months after auto-enrolment and the employee contributions will be refunded.
Secondly, an employee can opt out in the 2-month period immediately following 6-months after a contribution rate change (i.e. months 7 and 8). In this case, the employee will receive a refund of the difference between the new and previous rates. This second option is available only during the first ten years of auto-enrolment as contributions are phased in.
In both opt-out scenarios outlined above, any previous employer matching contributions and government top-up contributions will remain in the employee savings pot. Contributions that are not eligible for refund, including those of the employer and government will remain in the savings scheme and will continue to be invested up to retirement age.
After two years, any employee who opted out of auto-enrolment and who still meets the eligibility criteria will be automatically re-enrolled.
Employees can also suspend contributions but will not get a refund of any contributions already made. After a two-year period, any employee who suspended contributions and who still meets the eligibility criteria will be automatically re-enrolled.
Administration and oversight
The National Automatic Enrolment Retirement Savings Authority (NAERSA) will oversee the auto-enrolment scheme's administration. This new state agency will ensure the scheme operates smoothly and in compliance with regulations, supervised by the Pensions Authority. NAERSA will be statutory independent and will be governed by a Board of Directors.
The auto-enrolment scheme will be subject to charges. The Government have advised that charges will be set. Employees will be able to view any charges and fees on their annual statement.
Security
It should be noted that akin to other pension and savings plans, the auto-enrolment savings will not be guaranteed by the State. The State have provided assurance that steps will be taken to ensure that the savings are invested as safely as possible. These steps include choosing low risk investments in the default strategy, only using regulated funds for investing and only contracting with reputable and fully regulated investment companies.
Conclusion
Auto-enrolment marks a significant step in enhancing retirement savings for Irish employees. By automatically enrolling eligible workers into a pension scheme, the initiative aims to provide a more secure financial future and reduce reliance on the State pension.
How can we help?
We can assist in determining whether auto-enrolment or current pension arrangements are optimum depending on factors such as contribution amounts, age profile, tax relief, administrative fees etc.
Contact us
Joanne O'Brien | Tax Director | Cork
joanne.o'brien@mooreireland.ie
+353 21 427 5176
Colin Dignam | Tax Director | Dublin
colin.dignam@mooreireland.ie
+353 1 888 1004
Eoghan Bracken | Tax Partner | Dublin
eoghan.bracken@mooreireland.ie
+353 1 888 1004
Padraig O’Donoghue | Tax Partner | Cork
padraig.odonoghue@mooreireland.ie
+353 21 427 5176