What is Auto Enrolment?
Pension auto enrolment is a retirement savings scheme for employees that will be introduced on 1 January 2026. The objective of auto enrolment is to tackle the retirement savings gap in Ireland and to get people saving for retirement. It is a common feature in many jurisdictions but will be a new concept for Irish employers and is expected to impact over 800,000 Irish employees.
The Automatic Enrolment Retirement Savings System Act 2024 (“the AE Act”) sets out criteria for the eligible employees who will be automatically enrolled in the savings scheme. The pension benefit will be known as “My Future Fund”. It will be a requirement for employers, employees and the Government to make specified contributions to the fund and this will be overseen by the National Automatic Enrolment Retirement Savings Authority (NAERSA).
Who is eligible for Auto Enrolment?
Employees aged between 23 and 60 years who earn more than €20,000 per annum and are not in exempt employment will be automatically enrolled. Exempt employment is when the employee and/or the employer is already contributing to a qualifying pension arrangement such as an occupational pension or a personal retirement savings account.
Employees aged between 18-23 years and 60-66 years and who are not in exempt employment may choose to join the scheme voluntarily.
Employees may opt out of the scheme during an opt out window of between 6-8 months from the date of enrolment. Employees who choose to opt out during this period will be refunded their contributions since the date of enrolment. However, their employer contributions and government contributions will be held in the pension scheme to their benefit. Employees will be re-enrolled in the scheme within 2 years from the date of opting out, unless they are in exempt employment.
What are the auto enrolment pension contribution rates?
Employees, employers and the Government will be required to contribute to the pension scheme. The contributions will be calculated as a percentage of each employee’s gross annual salary, capped at €80,000 per annum. The contributions will be increased over a 10 year period.
The below table shows the level of contributions paid by the employee, employer and the Government over the next 10 years:
| Year of Auto Enrolment Scheme | Employee Contribution | Employer Contribution | Government Contribution | Total Contribution |
| 0 – 3 years | 1.5% | 1.5% | 0.5% | 3.5% |
| 4 – 6 years | 3% | 3% | 1% | 7% |
| 7 – 9 years | 4.5% | 4.5% | 1.5% | 10.5% |
| 10+ years | 6% | 6% | 2% | 14% |
Limitations of Auto Enrolment
The introduction of the AE Act is an important legislative introduction. It is crucial that Irish workers are preparing for retirement as relying solely on the State pension for retirement will mean a significant reduction in income and as a result, a very limited standard of living. However, there are some concerns with the current framework for auto enrolment which both employers and employees need to consider.
While the contributions are based on percentages of gross salary, the employee contribution will be deducted from net salary. This will no doubt be a concern for low and middle income workers, particularly when the cost of living is at an all time high. This may result in employers coming under pressure from the workforce to consider requests for increases to remuneration to meet this deficit in net salary. This will no doubt be a challenge for businesses already trying to cope with staff retention, significant overheads and the threat of global trade wars.
Employers will be able to claim tax relief on the contributions made to the scheme. However, employee contributions will not receive income tax relief as the Government top up contribution will be equivalent to income tax relief of 25%. It is difficult to see this appealing to higher earning employees who currently receive income tax relief at 40% on pension contributions, subject to eligibility criteria.
The current framework for auto enrolment does not permit employers or employees to make contributions in excess of the fixed percentages outlined in the table above. This limits an employee’s ability to make additional voluntary contributions, a facility which is available with other pension schemes.
The above represents some of the limitations based on the current framework, but there is the possibility that these concerns could be addressed going forward once auto enrolment is operational.
Compliance, Enforcement and Penalisation
NAERSA will have the authority to issue compliance notices and/or fixed payment notices for breaches of the AE Act, including failing to pay contributions.
Breaching the provisions of the AE Act will be a criminal offence and the sanctions include fines of between €5,000 – €50,000 and a term of imprisonment of up to 3 years, depending upon the severity of the offence.
The AE Act also provides protection for employees who are prevented from joining the scheme and against penalisation or the threat of penalisation for participating or proposing to participate in the scheme. The Workplace Relations Commission will have jurisdiction to hear such cases and Adjudication Officers will have the power to direct employers to rectify any contraventions, pay any contributions due or make an award of compensation up to a maximum value of 4 weeks remuneration.
Next steps for Employees
Most employees who are already contributing to an occupational pension will not be impacted by auto enrolment. It is recommended that employees speak with their employer’s HR department if they have questions about a current occupational pension scheme or pension auto enrolment.
Next steps for Employers
There is a lot of work to be done by employers which will require advice from financial and legal specialists. The following are some strategic and practical next steps for employers:
- A financial review to determine how pension auto enrolment will impact the budget and financial projections of the business. This should include an analysis of the employees to determine what employees will be impacted by the introduction of the scheme;
- An assessment of administration and payroll resources to determine the capacity of current resources for implementing and monitoring contributions to the scheme and where training might be required;
- Consultation with and notification to employees regarding the impacts of auto enrolment on their employment;
- Decisions on continuing with an existing occupational pension scheme, introducing an occupational pension scheme, choosing the auto enrolment pension scheme or operating a dual system consisting of occupational pensions for some workers and auto enrolment for other workers;
- Assessing occupational pension schemes currently in operation to determine whether the employees of the business are in exempt employment; and
- Proposed amendments and updates to contracts of employment and company handbooks to ensure legal compliance.
If you require advice on how Pension Auto Enrolment will impact you or your business, contact a member of our employment law team.
*Before acting or refraining from acting on anything in this guide, legal advice should be sought from a solicitor.