From September, tens of thousands of workers in Ireland who do not have a pension plan will be automatically included in a new government-backed pension scheme. The Auto-Enrolment (AE) pension aims to bolster financial security for employees in later life, increase participation in pension savings, and reduce reliance on the State Pension.
The scheme, which comes into effect on 30th September 2025, is mandatory for all eligible workers. It works like a conventional workplace pension scheme, with employers paying into it alongside employers.
Here’s what both employers and workers affected by the changes need to know to prepare.
Who is Eligible for Auto-Enrolment Pensions?
The AE scheme targets employees who are not currently participating in a workplace pension plan and are not paying into a private pension. Employees who meet this criteria will be automatically enroled if they are between 23 and 60 years old and have an annual income of €20,000 or more.
Other employees – i.e. those aged 18-22 or over 60, 61-66, or those who earn less than €20,000 – are not barred from the scheme completely and can opt into the scheme voluntarily. They just won’t be enroled automatically.
How Much Are the Contributions?
The AE scheme will operate a phased contribution system over the course of a decade. Contributions from employees, employers and the state will be divided into four phases as follows:
- Years 1-3: Employees contribute 1.5% of gross earnings, matched by their employer; the State adds 0.5%.
- Years 4-6: Contributions increase to 3% each from the employee and employer, with a 1% State top-up.
- Years 7-9: Employer and employee contributions increase further to 4.5% each; State contributes 1.5%.
- Year 10 onwards: Contributions reach 6% from both employee and employer, with a 2% State top-up.
These contributions apply to gross earnings up to a cap of €80,000 annually. The breakdown means that for every €3 an employee contributes, a total of €7 is invested into their pension fund.
Employers will be required to enrol all eligible employees into the scheme and must ensure their payroll systems are updated to handle deductions and contributions efficiently.
Are There Any Exemptions and Can Employees Opt Out?
Employers that already run an occupational pension scheme with deductions taken through payroll may be exempt from the AE scheme, as long as their scheme meets approved standards and covers all workers who would otherwise be eligible for AE. They must also gain the consent of employers to use existing schemes in lieu of AE.
Employers don’t have to enrol any staff that have their own private pension scheme, including Personal Retirement Savings Accounts (PRSA), Retirement Annuity Contracts (RACs) and Pan-European Personal Pension Products (PEPP).
While initial enrolment is mandatory, long-term participation is not. After six months, employees who have been entered into the scheme can opt out and receive a refund of their contributions. However, this will only be for the employee’s own contributions – employer and state contributions made during this period will remain in the fund. Employees who opt out will be automatically re-enroled every two years, providing regular opportunities to start again.
Getting Ready for Implementation
With the September launch looming, we’d advise all employers to take proactive steps now to check compliance with AE and make any necessary changes. Failing to enrol eligible employees could result in fines or even prosecution.
Steps to take now include:
- Assessing your current pension provisions to see if they meet the AE criteria and what (if any) adjustments are necessary.
- Updating payroll systems to make sure they can process the new contribution requirements.
- Engage with your employees to ensure they are fully informed about the AE scheme, its benefits, and their options.
- Budget for the additional employer contributions and any administrative costs associated with the scheme.
For further information and help getting started, get in touch with us and we will match you with a professional financial advisor with expert knowledge of the pensions system.
