What Is Ireland’s Auto-Enrolment Pension Scheme? [2024 Guide]

The auto-enrolment pension scheme is a semi-mandatory retirement saving system expected to come into effect in January 2025. 

It aims to:

• Offer support and pension coverage to Irish workers post-retirement. 

• Simplify employee pension enrolment. 

• Make it easier for employers to provide an occupational pension scheme.

Let’s explore everything about the auto-enrolment scheme.

What Is the Irish Pension Auto-Enrolment Scheme?

Automatic enrolment (AE) is a pension saving plan proposed by the Irish government’s Department of Social Protection to ensure every Irish worker has access to a workplace pension to supplement their State Pension.

The Minister of Social Protection, Heather Humphreys, announced in October 2022 that the auto-enrolment scheme would be up and running by 2024. 

However, recent statements suggest a potential delay, with implementation possibly moving to January 2025. This timeline gives businesses and employees more time to prepare for the changes.

The employee, employer, and government will contribute to the employee's workplace pension fund in this new scheme. 

Why is an auto-enrolment pension necessary?

Presently, more than 750,000 Irish workers don’t have access to a workplace pension scheme. 

So they rely heavily on their State Pension post-retirement, which may not be enough to sustain them.

And that’s where the proposed auto-enrolment scheme comes in.

It’ll allow employees to have extra money when they retire — they won’t have to rely solely on the State Pension anymore.

(We’ll explore more benefits of the auto-enrolment scheme later in the article.)

How Does Auto-Enrolment Work in Ireland?

All eligible Irish employees not currently enrolled in a workplace pension will be automatically added to the auto-enrolment pension scheme.

Here’s an overview of how it works:

1. How Can Someone be Eligible for Auto-Enrolment in Ireland?

To be eligible for automatic enrolment, the worker must be:

• 23 to 60 years old 

• Earning more than €20,000 per year

Employees not meeting the required age and salary criteria can opt to enrol in this scheme — provided they don't already have a workplace pension scheme membership.

Additionally, employees who previously contributed to a pension but currently do not, will be auto-enrolled if they meet the above criteria.

2. What Are the Employee, Employer, and Government Contributions to AE Pension?

In the auto-enrolment retirement savings system, the government will contribute to the employee’s pension pot on top of employee and employer contributions.

As an employer, you must match your employee's contributions to a specific limit.

How Do These Contributions Work?

The scheme will be implemented in phases, with contributions increasing every three years. 

In phase 1, the proposed yearly contributions to the retirement fund will be:

• Employer and employee contributions: 1.5% each of gross pay

• Government’s contribution: 0.5% of gross pay

• Total contribution (employer + employee + government): 3.5%

Similarly, the contribution rates for employees, employers, and the government will increase over the years as follows:

• Years 4 to 6: Contributions will be 3% for both employees and employers, with a 1% government top-up.

• Years 7 to 9: Contributions will rise to 4.5% for both employees and employers and a 1.5% government top-up.

• Year 10 and onwards: Contributions will further increase to 6% for both employees and employers, with a 2% government top-up.

Here’s an example: 

Suppose Saoirse, who makes €20,000 annually, contributes 1.5% of her gross pay, i.e., €300, to her pension fund. 

Then, her employer must also contribute €300. The state will top this up by contributing 0.5%, i.e., €100, to her pension pot. 

So, a total of €700 will be added to Saoirse’s pension fund. 

But wait:

Employer contributions and government top-ups are capped at an income threshold of €80,000 gross annual salary.

This means the government and employers will only match employee contributions up to a maximum of €80,000 of earnings.

Employees earning more than €80,000 can still make higher contributions to the pension scheme — but the employer and the government won’t have to match the excess contributions.

The auto-enrolment contribution levels fixed by the government can’t be changed, and employees won’t be able to contribute an amount less than the set percentage for each year. 

They also won't be able to make Additional Voluntary Contributions (AVCs) to their pension pots initially. However, the CPA will consider allowing this in the later stages of the scheme.

What’s more?

Employee contributions will be deducted from their net income after income tax, pay-related social insurance (PRSI), and universal social charge (USC) have been deducted. 

Since the state tops up the pension fund, the auto-enrolment system isn’t included in the current tax relief framework for occupational plans.

Moreover, employer contributions to auto-enrolment pension are exempt from being treated as a taxable benefit. Simply put, this won't add to your employees' taxable income, making it a tax-smart way to enhance their retirement savings.

3. What Are the Opt-In/Out and Postponement Rules for Ireland’s AE Pension Scheme?

Auto-enrolment in Ireland will operate on an ‘opt-out’ rather than an opt-in basis. 

This is to encourage employees to understand the importance and benefits of retirement savings with the help of a pension plan.

What does that mean?

While all eligible employees will be automatically enrolled in the pension scheme, they can opt out or postpone their auto-enrolment after six months of joining.

Once they have postponed or opted out of auto-enrolment, they'll have a two-month window to receive a refund of their contributed money. Employees who don’t claim their refund within the given timeframe can opt out of the scheme without a refund. 

However, the contributions paid by employers and the state will remain in the pension pot.

The employee can postpone or opt out of the scheme for a limited time and will be automatically re-enrolled after two years. 

If employees want to opt out of the scheme again, they'll have to repeat the entire process. 

4. What Happens to an Employee’s Pension Pot When They Change Jobs? 

The auto-enrolment pension scheme is based on ‘pot follows the member’. 

The employee’s pension pot is not linked to the employer but follows the employee as they move jobs. 

So, the worker or jobholder won't have to join a new pension scheme each time they change jobs, and all their savings will be combined in one pot throughout their working life.

How Should Employers Auto-Enrol Employees?

The rollout of the auto-enrolment scheme will ensure that employers don’t have to set up a pension scheme or invest with a pension provider, thereby reducing administrative costs.

However, they must identify and add eligible employees to the auto-enrolment scheme. 

Employers must:

• Facilitate payroll deductions and ensure their payroll process is compatible with the auto-enrolment contribution requirements. 

• Update employee employment contracts to ensure they're up to date with the pension provision for contributions and other legal requirements.

• Communicate with employees — advise them on how the new system will benefit them and explain how the employee, employer, and state contributions will work.

• Report to the auto-enrolment body — while calculations are done through existing payroll software, employers will need to submit a separate report directly to the central body overseeing the scheme. More details on this reporting process will be available closer to launch.

Note: If you already have a workplace pension for your employees, the auto-enrolment scheme won't disrupt your existing plan. Employees already contributing (based on payroll records) won't be auto-enrolled in the new program.

That’s a lot to take in, right? 

These additional responsibilities could bog your HR team down. And more so if you already have an occupational pension scheme. 

In such cases, you’ll have to manage contributions for two different schemes.

No reason to worry, though! Kota can help you out.

What’s Kota?

Kota is an efficient employee benefits platform that offers compliant benefits packages in Ireland from Irish Life.

Not just that, it provides a centralised digital hub and other smart features to make benefits management a breeze.

Here’s how Kota can help:

• Easy Enrolment: Enrolling employees in a workplace pension scheme is a breeze with Kota. The platform also makes it easy to track your matching contributions to each employee’s pension plan.

• User-friendly Digital Benefits App: We’ve designed our benefits app to promote transparency and accessibility. Employers and employees can monitor benefits information anytime, anywhere, directly from their smartphones.

• Payroll Sync: Kota seamlessly connects to your existing HR and payroll systems, automating data flow and minimising manual work.

Book a free demo to see Kota in action! 

What are the Benefits of the Irish Auto-Enrolment Pension Scheme? 

You probably have an idea of the auto-enrolment scheme’s benefits by now. 

Here’s a quick refresher:

A. Benefits to Employers 

The auto-enrolment pension scheme allows employers to:

• Save costs and reduce the administrative burden by not having to set up or run a workplace pension scheme.

• Ensure their employees are looked after even in retirement. 

• Acquire talented employees and stay ahead of their competitors.

B. Benefits to Employees

By enrolling in this pension scheme, employees can:

• Boost their retirement income as the state tops up employee and employer contributions.

• Easily switch jobs without enrolling in a new company pension every time. 

• View their account balances, investments, and contributions through an online portal managed by the Central Processing Authority (CPA).

• Protect their contributions and investment returns since no one can access them.

• Receive employer contributions without any tax implications, as these are exempt from tax as a benefit-in-kind.

How Will Auto-Enrolment Affect Casual/Temporary/Zero-Hour Workers in Ireland?

All existing and new employees will be evaluated for pension auto-enrolment systems eligibility and will be auto-enrolled if they fulfil the criteria. 

It doesn’t matter whether they are on probation, working casually, or part-time. 

If the CPA (Central Processing Authority) determines an employee fits the eligibility criteria, auto-enrolment contributions from the employee, employers, and state will begin on the first paycheck following enrolment.

Meanwhile, self-employed people won't be part of the auto-enrolment scheme for now due to the challenges of integrating them into a payroll-based system. 

However, this might be revisited later. If you're self-employed, you can explore other private pension options and take advantage of the available tax reliefs.

8 FAQs on Ireland’s Auto-Enrolment Pension Scheme 

Let’s answer eight common questions about the pensions auto-enrolment scheme:

1. What Happens to State Pension Scheme If Employees Opt for Auto-Enrolment Pension?

The auto-enrolment pension scheme won’t change or replace the State Pension.

It’ll supplement the State Pension, giving all eligible Irish employees access to pension-saving schemes. 

When implemented, the auto-enrolment scheme will support more than 750,000 Irish workers who don't already have access to a pension scheme with extra retirement income.

2. How Is the Auto-Enrolment Scheme Different from a Workplace Pension Scheme?

In a workplace scheme (aka company pension schemes), both the employer and employee must contribute a minimum amount to the employee's pension fund.

The contribution rate has been fixed at a 5% minimum contribution for employees and a 3% minimum contribution for employers, making the total minimum contribution 8%. 

On the other hand:

In an auto-enrolment scheme, the government has set minimum contributions for the employers, employees, and the state, which increase every three years:In the scheme's initial 3 years, employees and employers contribute 1.5% of employees' gross annual salaries, while the state contributes 0.5%.

The employer has to match employee contributions, and the state will also top-up these contributions by adding a fixed percentage of money to the employee’s pension pot.

3. How Will Contributions Be Invested Under Ireland’s AE Scheme?

Under the auto-enrolment scheme, you won't need to worry about selecting an investment strategy unless you choose to. 

The scheme offers a default 'lifecycle' strategy, where the risk level decreases as you approach retirement, ensuring your investments become more conservative over time.

For those interested in tailoring their investment approach, there are four fund options available:

• Conservative: Primarily focused on government bonds and cash equivalents.

• Moderate Risk: Includes government bonds, blue-chip equities, and stock exchange indices.

• Higher Risk: Targets equities and property for potentially greater returns.

• Default: Automatically adjusts based on a lifecycle approach, reducing risk as you near retirement.

4. Are There Any Fees or Charges Associated With the Irish AE Pension Scheme?

The Irish auto-enrolment pension scheme includes a maximum management fee of 0.5% per year on the total value of funds under management. 

Critics have suggested that this rate should be lowered to align more closely with lower-cost pension alternatives and maximise pensioners’ returns.

5. What Happens to Employee’s AE Enrolment/Savings if They Stop Working, Emigrate or Pass Away?

• If an employee stops working, they remain enrolled, but their contributions stop.

• Upon emigration, their savings remain invested and will be accessible at retirement.

• If they pass away without claiming their pension, their savings are incorporated into their estate, valued at notification, and distributed like other investments.

6. Can Employers Claim Tax Relief on Their AE Pension Contribution?

Employers can claim tax relief on their contributions to the auto-enrolment pension scheme against corporate tax, but this does not apply to employee contributions.

7. When Can Employees Draw Down Their Pension Benefit?

Employees will be able to draw down their auto-enrolment pension savings at the State Pension age in Ireland (66 in 2024).

There is no provision for early drawdown. However, exceptions may be allowed for those retiring early due to ill health.

8. Do Other Countries Offer Auto-Enrolment? 

Ireland is the only OECD country (Organization for Economic Cooperation and Development) that doesn’t offer an automatic enrolment retirement saving system yet. 

Other OECD countries that have introduced the automatic enrolment retirement savings system at a national level to help their employees save for retirement include: 

• The UK 

• New Zealand

• Poland

• Italy

• Turkey

• Lithuania

Offer & Manage Employee Pension Schemes Easily with Kota

Ireland's auto-enrolment scheme offers a separate retirement savings option for employees who are not already enrolled in a workplace pension plan. 

Employers with existing occupational schemes can continue to operate them alongside the auto-enrolment program. 

The fact is: 

Offering workplace pension plans with greater benefits than the government's auto-enrolment scheme can help ensure your employees are well looked after in retirement. It’s also a better option for employees in the higher tax bracket due to the tax relief provision.

Want to offer your team a powerful workplace pension solution?

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It’s a defined contribution pension scheme to help employees manage investment risks and direct their investment into appropriate funds or equities that best match their retirement needs. 

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