Auto-enrolment, a system designed to help workers save for their retirement automatically, is being introduced in the first weeks of January 2026.
Instead of actively choosing to join a pension scheme, employees are automatically enrolled by their employer, making it easier for more people to save money for their future.
Ireland has been exploring and implementing policies to improve retirement savings, and auto-enrolment is a key part of this effort.
Additionally, the age demographics in Ireland have us on a worrying course – we will have three times the current numbers retiring in 25 years, with less than one third of the workforce to fund the payments.
Our age expectancy is now in the mid-80s (we are living healthier, longer and require money to sustain us), so auto-enrolment is just one solution to the problem.
Why is auto-enrolment important?
Many workers in Ireland, aged 23 to 60, do not save enough for their retirement. This is due to various reasons, such as a lack of awareness, complex pension schemes, or simply forgetting to save. Without sufficient savings, retirees may face financial difficulties later in life.
Auto-enrolment aims to address this problem by making saving for retirement automatic and straightforward.
How does auto-enrolment work?
In an auto-enrolment system, employers are required to automatically enrol eligible employees into a pension scheme – My Future Fund. The employee's contribution is deducted directly from their salary before taxes, making it convenient.
Over time, both the employee and the employer contribute to the pension fund, which is invested to grow over the years.
Here’s a typical process:
1. Eligibility: employees are automatically enrolled between the ages of 23 - 60, have no existing occupational pension scheme with the employer and are earning above a minimum threshold (€20,000). They can have a separate, standalone pension (PRSA – Personal Retirement Savings Account) outside their employer’s pension.
2. Automatic enrolment: once eligible, the employee is enrolled without needing to take any action.
3. Contributions: the employee contributes a percentage of their salary, initially 1.5%, and the employer matches this with the government paying 0.5%. After two and a half years, it goes to 3%, 3% and 1%, after six years 4.5%, 4.5% & 1.5%. Finally, after 10 years, the contributions are 6%, 6% and 2%.
Bear in mind, a young graduate of 22 can set up their own PRSA with 15% of their own net relevant earnings as their contribution. When they hit 30 years of age, it moves to 20%, then 25% at 40 years of age, 30% at 50 years of age, 35% at 55 and 40% at 60 years of age!
4. Opt-out rights: employees have the right to opt out if they choose. If they opt out within a certain period – six months minimum, their contributions are refunded, and they are removed from the scheme. However, if they stay enrolled, contributions continue until they retire or leave the job.
5. Progressive implementation: usually, auto-enrolment is phased in gradually, giving employers and employees time to adapt.
Benefits of auto-enrolment
- Increased retirement savings: more people save consistently, leading to better financial security in later years.
- Convenience: savings are automatic, reducing the chance of forgetting or avoiding pension contributions.
- Employer support: employers contribute, boosting the amount saved.
- Government incentives: while there are no tax reliefs, the government cash contribution will encourage participation. It still allows employees to claim their full pension tax relief by setting up their standalone separate PRSA – a no-brainer.
Challenges and considerations
While auto-enrolment has many benefits, there are challenges:
- Low-income workers: some may find contributions difficult, so minimum contribution levels and thresholds are carefully set.
- Opt-out rates: some employees might opt out, reducing overall savings.
- Adequate savings: ensuring that contributions are enough to provide a comfortable retirement is essential.
- Cost for employers: implementing auto-enrolment can involve administrative costs for businesses and affect profits.
Impact of auto-enrolment
If successfully implemented, auto-enrolment in Ireland could:
- Significantly increase the number of people with adequate pension savings.
- Reduce future reliance on state pensions.
- Promote a culture of saving and financial planning.
- Improve overall economic stability for retirement age.
Auto-enrolment is a powerful tool to help Irish workers save more effectively for their retirement. By making saving automatic, reducing barriers, and providing incentives, it aims to ensure that more people can enjoy financial security in their later years.
While there are challenges to address, the benefits of a well-designed auto-enrolment system can be substantial, shaping a more secure future for Ireland’s workforce.
If you have an existing PRSA not connected to your employment, you could still fund both systems…the auto-enrolment personal contribution after 10 years is only 6% - as already stated, at age 40, for instance, you could invest up to 25% yourself in a pension or an Additional Voluntary Contribution.
It is hugely important to take honest, professional and independent financial advice. Some employers are offering initial better percentages of contribution (up to 3% at the start instead of 1.5%) but not offering the increased staggered percentages in the latter years…caveat emptor.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
For more information, click on John Lowe's profile above or on his website.
