Ireland is one of the last countries in the developing world to introduce auto-enrolment for pensions. But it is coming and employers and employees need to get ready, writes John Cradden.
It’s been talked about for nearly 20 years and has had more false dawns than an artic winter, but the current word is that the auto-enrolment pension scheme will commence here in January 2026.
Of course, there remains a possibility that the scheme could be delayed yet again, but it’s probably wise for any employer not to bank on this and to continue preparing for its launch.
“I’ve spoken to employers who have said, because they’re putting 1.5% aside next year, they are not doing pay increases”
Previously slated to commence this September, the Government’s explanation for the latest delay was to align the new scheme with the standard tax year while also giving additional time for payroll providers – especially smaller providers – get their systems ready. It also wanted to give more time for employers, particularly small businesses, to ensure they can be compliant with the legislation from the start.
So if you still have work to do to ensure your firm is compliant with the terms of the scheme by the end of the year, what are the main challenges you need to address?
The information challenge
The first challenge is information. While enough is known in basic terms about what the scheme means for employees, there’s still a dearth of detail and many as-yet unanswered questions for employers.
“For all its imperfections, one positive of the auto-enrolment scheme is that it should start more conversations about pensions”
The immediate priority will be to have your payroll systems ready to automatically deduct contributions from employees who will be enrolled in the scheme as well as facilitate your own matching contributions.
NAERSA (National Automatic Enrolment Retirement Savings Authority), the agency that will run the scheme, has been telling employers that this will be a largely seamless process, according to Colm Moore of Moore Wealth Management, which advises a number of SMEs.
Payroll providers like Sage or BrightPay will essentially scan your payroll file, look for any employee that’s earning above €20,000 and under €80,000 and see where your employee is making a contribution to a pension scheme. If they are, they’re going to skipped over, but if not, they’ll be auto-enrolled.
Under the terms of the AE scheme, the employer deducts 1.5% of the employee’s salary, the employer pays a matching 1.5% contribution, and the Government tops this up by a further 0.5% to make up a total contribution of 3.5%. (While this might seem low, the levels of contributions will be ramped up at three-year intervals over the next ten years.)
However, employers are also expected to be the first port of call for any employees with questions – something that is raising some immediate concerns.
The guidelines say that the onus is on the employer to make sure their employees are aware of the scheme, but Moore says it’s likely that there will always be a cohort for whom the first inkling of AE will come with their first pay-day in 2026, when they realise that their salary has been deducted by 1.5%.
“That’s going to cause issues for the employer because regardless of what publicity goes out around this, there will be some people for whom the first they’re going to know about this is when they see it coming out of their pay packet. And, of course, their first port to call is going to be the employer on that.”
Other important information to provide will be around the choice of funds, of which there will be a choice of four, each with differing levels of risk, including a low, medium and high risk funds. If the employee doesn’t express a preference, the ‘lifestyle’ fund will be the default one.
Any employees automatically enrolled into the scheme will be allowed to opt out, pause or suspend their contributions after six months. However, a potential headache for employers is that these employees will be automatically re-enrolled into the scheme after two years.
Budgeting for contributions
If they do nothing else, employers will need to budget for paying out 1.5% of all their payroll in January, and notify affected employees that they are going to have 1.5% taken from their salaries.
“I’ve spoken to employers who have said, because they’re putting 1.5% [aside] next year, they are not doing pay increases,” said Moore. “That is the pay increase as far as they are concerned. You can imagine that going down like a lead balloon as well, so it’s preparation and communication with the employees because there is no communication from the NAERSA at the moment.”
Contracts and other HR documentation
One consequence of such an important scheme is that, because it’s been brought in by legislation to be legally binding, this will require employee contracts, handbooks, policies and procedures to be reviewed and updated.
This means you’ll need to consult with your solicitor or HR consultants to ensure these contracts are updated accordingly.
Employee engagement
Providing basic information about the scheme to employees is one thing, but if you operate a company pension scheme, you may need to go further in terms of engaging employees about their options.
If you have a company pension scheme for your employees but not every employee is signed up, the introduction of AE could actually be a strong incentive to get them to do so and thereby avoid the administrative burden of operating two separate schemes.
There is no provision in the auto-enrolment legislation for employers to automatically enroll employees into their own pension plans or PRSAs. But another good reason to encourage all employees to sign up to your company pension scheme is that it’s widely acknowledged that many people in AE will be at a disadvantage in terms of tax relief.
This is because the way the tax relief works is very different to traditional pensions, with those in the higher 40% tax bracket ending up a worse off than if they signed up to a company scheme with all the benefits of tax-free growth at your marginal rate.
Under AE, the government pays a top-up equal to one-third of the contribution being paid by the employee. This equates to tax relief of 25%. “So it’s a better deal for somebody who’s paying tax at 20%”, said Moore. “But if you’re a 40% taxpayer, why would you go into auto enrolment when your tax relief and your uplift on it has been cut in half?”
For employers who don’t have a company scheme, there are probably fewer issues if the plan is simply to include their employees in the AE scheme, but Moore reckons that once the understanding of the scheme beds in, employees on the higher tax rate may start to lobby employers to set up a company scheme so that they can benefit from the 40% tax relief.
One further point of contention for employers regarding AE is to with the opt-out process. According to Moore, if an employee opts to stay out of the scheme after six months, they can get a refund of their contributions, but the employer can’t.
For all its imperfections, one positive of the AE scheme is that it should start more conversations about pensions.
Many of the points here are tackled in a number of useful guides and blogs for employers on the AE scheme that are well worth checking out, including from HR consultancy Mercer, payroll software providers Sage and financial advisors Moore Wealth Management.
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