What will pension auto-enrolment mean for me? A guide for employees

What is the main purpose of the state auto-enrolment scheme (the “State AE Scheme”), and why is it being introduced now?

In Ireland, the public sector is well covered when it comes to pension coverage, but there are low levels of pension coverage in the private sector. In the private sector, considerably less than 50% of the private sector workforce has pension provision.

The government is aware that demographically, the state pension system won’t be able to meet that shortfall. Some European countries have an earnings-related state pension system, but we don’t. We have a state pension system that pays a subsistence level of income in retirement, and in any event, that’s going to come under increasing pressure. So there’s an absolute imperative to increase private-sector coverage.

What date will auto-enrolment start?

The exact starting date was recently pushed back from 30 September, 2025. It seems likely to be in early 2026 now.

What workers will this affect most? 

Probably those on entry-level salaries and minimum wage workers, because they are most likely not to have an existing scheme. Also, there are certain sectors in the market where there might be quite a high turnover of staff. In these sectors, staff might be paid at a relatively low level and, therefore, even if there was a workplace pension system, they have chosen not to contribute to it. Or the employer may be a small employer who doesn’t have the existing capacity to set up a scheme. So proportionately, it’s most likely that those are the sectors that will be most impacted.

It sounds great for young people. Many older workers wish they’d started their pensions earlier.

Yes, I agree. One of the critical benefits of the system is that the State will be managing a pot. So it doesn’t matter if you’re changing jobs frequently and if you haven’t completed an eligibility period to join an employer scheme, or if your employer doesn’t have its own pension scheme.

This will also be a centralised pot, so if you’re moving around a lot, like many do in their 20s, your contributions will be held in a single pot that’s accumulating. So, you’re not accumulating small amounts in different schemes and later trying to find and merge them.

Also in the private sector, if you’ve been with an employer for less than two years, the employer doesn’t have to vest its contributions to your scheme. You could have a situation where you’ve been with an employer for 20 or 22 months and you leave the employer, and the employer claws back the employer contributions they made to the pension scheme on your behalf. Under the State AE Scheme, your employer contributions are vested immediately, and you won’t lose them.

Both employer and employee can contribute 1.5%, but can you increase that rate if you’re in a position to do so?

No, there isn’t that flexibility. There isn’t a facility to make additional contributions; the rates are locked in. In comparison with a private sector pension scheme, one of the disadvantages of the State AE Scheme is the inflexibility of it. So there’s a choice there for employers. This could be a trigger for an employer to say, ’maybe I’ll set up a pension scheme for my staff that’s a bit more flexible than this, and I can be involved in the design of it’, and that’s a very valid way to proceed.

The tax relief is higher on private sector pension schemes, and there are new structures in the Irish market now, which weren’t there before, which have made private sector schemes more attractive.

For instance, there are Master Trusts now, which are very large, multi-employer pension schemes, run by professional administrators and offering economies of scale in terms of investment choices and running costs.

There are also what are called personal retirement savings accounts (PRSAs), which are primarily insurance-based structures to which employers can contribute. Tax relief for employer contributions to PRSAs has been improved in recent years. And again, the administration is being managed not by the employer, but by a large, well-resourced third party.

Can employees opt out?

Yes, but they have to wait six months to opt out and then only have a two-month window in which they can opt out, which is quite a tight window. If they opt out, they’ll be opted back into the State AE Scheme two years later with the same opt out window 6 months after that. Employees who opt out will receive a refund of their employee contributions.

Is opting out a potential short-term measure for those trying to pool funds for maternity leave or a career break?

There is a separate suspension facility, which I think is a better choice than opting out.  After 6 months’ enrolment in the State AE Scheme, employees can choose to suspend contributions for a minimum of 1 year, up to a maximum of two years.  If you’re on maternity leave, you still have all your statutory rights, so if you’re being paid on maternity leave, the State AE Scheme will still run for you.

Once you earn over €20,000, you’re opted in, even if part-time, but what about people who work multiple jobs? How does that work? 

The government is attempting to make that as easy as possible. The €20,000 threshold is an aggregate threshold, so it will be assessed over those multiple jobs. So even if you’re running two jobs at the same time, you will obviously have a single PPS number. You’ll be identified, and the cumulative threshold will be determined, and then both employers will receive a notice saying that this person must be auto-enrolled, and it’ll be then pro rata. Each employer will pay their percentage deduction.

What happens to your State AE Scheme pension if you move jobs to a company with a private scheme? 

It sits there and continues to be invested on your behalf. You can choose an investment strategy, and if you make no choice, your pension is invested on a lifecycle basis. This means that the investment will be invested in a way that’s appropriate for your age, so that it will be more in equities when you’re younger and trying to earn an investment return, and then will become more cautiously invested as you come closer to your State retirement age.

At the moment, there isn’t transferability between the State AE Scheme and private sector schemes, and because they’re two different tax systems, it will be difficult to achieve that. So, individuals will have to deal with each pot separately on retirement.

One of the critical benefits of the State AE Scheme is that the State will be managing a pot. So it doesn’t matter if you’re changing jobs frequently and lots of employers are contributing on your behalf.

Which is better, the State AE Scheme, or your employer’s pension scheme, if your employer has one? 

The State AE Scheme starts at a contribution rate of 1.5% for both employer and employee, which is low by normal private sector standards.  Tax relief is also lower, if you are in the 40% income tax bracket.  However, over a 10 year period the State AE Scheme contribution rates will go up to 6% for both employer and employee.

Currently a private sector scheme does not need to meet any minimum standards to qualify as an alternative to the State AE Scheme.  Once you are in your employer’s scheme, they don’t have to enrol you in the State AE Scheme.  However, at some point in the first six years of the system the Government will introduce minimum standards for private-sector schemes. It’s almost certain that those minimum standards will include that the private sector contribution rates are at least as generous as those in the State AE Scheme.   Until then, you should check the exact terms of your employer’s scheme.

Does it interact with existing pension schemes? Can you merge?

The State AE Scheme will not interact with existing pension schemes. One of the complexities of the way they’ve set up the State AE Scheme is the different tax system, and the different way the tax relief is applied as compared to private sector schemes. There’s no tax relief under the State AE Scheme, but instead the State makes an additional contribution of 0.5%. This is in contrast to the private sector system where the State’s contribution takes the form of both the employer and employee contributions being eligible for tax relief.  It will not be possible to merge existing pension arrangements with the State AE Scheme. If an employer already has a pension scheme in place, this will run in parallel to the State AE Scheme. So that is a problem really because, to be frank, there should be more flexibility and ability to merge the two, but that’s the way it is.

Is that likely to change? 

There are no plans to allow for this in the initial years of the State AE Scheme, but provision may be made for this in due course.  There are systems built into the legislation that require the Auto-Enrolment Authority to review the operation of the State AE Scheme at regular intervals. The Auto-Enrolment Authority will have to report on its findings and set out any recommendations. The report will be submitted to the Minister who will bring the findings to the Oireachtas. This review process may well lead to design changes at some point, if the Auto-Enrolment Authority thinks there are things that aren’t working.

Are there any other challenges you foresee for employees?

For employees there shouldn’t be any administrative challenges, except maybe ensuring that their employer is complying. However, the contribution rates may be a financial pressure if people have high rent costs, high food costs and so on. Where the contributions pose too much of a financial challenge, it is possible to opt out, but I believe that’s a poor option in the long term. So, the challenge for employees is to think carefully about managing the contributions in the shorter term in the interest of their longer term financial benefit.

Where can employees find out more?

There is good basic information on gov.ie, and a government information campaign is being rolled out, which should also provide a lot of information.

If you need personalised advice on the auto-enrolment scheme, get in touch with Eversheds Sutherland by calling +353 (0)1 664 4200 or visiting eversheds-sutherland.com/en/ireland.