AE Explained

​What is Ireland's Auto Enrolment scheme and why is it being introduced?

Ireland's Auto Enrolment scheme, known as 'My Future Fund', is a new retirement savings system set to begin in January 2026. It aims to automatically enrol eligible employees into a workplace pension to supplement the basic state pension. This is being introduced because a significant number of people currently don't have private pensions, and with an ageing population, there's a concern about retirement poverty and over-reliance on the state pension. Inertia also prevents many people from saving for their retirement, and Auto Enrolment is seen as a way to encourage greater financial awareness and participation in supplementary pension provision.

Who is automatically enrolled in 'My Future Fund'?

Employees will be automatically enrolled in 'My Future Fund' if they are not already contributing to an existing employer pension scheme, are aged between 23 and 60, and earn €20,000 or more across all employments. This includes employees on probation, as well as casual, seasonal, or part-time contracts. Employees under 23 or over 60, and those earning less than €20,000, can voluntarily opt-in. Self-employed individuals are not included in the initial stage.

How do contributions work in the Auto Enrolment scheme?

Contributions are made by the employee, the employer, and the state. The employee contributes a percentage of their gross salary, which the employer matches. Instead of traditional income tax relief on the employee's contribution, the state provides a top-up contribution equal to €1 for every €3 the employee pays in, effectively an equivalent of 25% tax relief. Contributions are phased in over the first 10 years of the scheme, starting at a total of 3.5% (1.5% employee, 1.5% employer, 0.5% state) in the first three years, and increasing every three years to reach a total of 14% (6% employee, 6% employer, 2% state) from year 10 onwards. These contributions are calculated on the employee's gross salary up to €80,000 per annum and are deducted after income tax, PRSI, and USC.

What is the difference between the State top-up in Auto Enrolment and traditional pension tax relief?

Traditional pension schemes offer tax relief at the employee's marginal rate (20% or 40%), meaning contributions are taken from gross income before tax. The Auto Enrolment scheme, instead of offering tax relief, provides a state top-up contribution. For every €3 an employee contributes, the state adds €1 to their pension pot. This is equivalent to a 25% tax relief, which is simpler to understand for participants, especially those at the standard tax rate or outside the tax net who receive less benefit from traditional tax relief. Employee contributions to My Future Fund are taken from net income, after deductions.

What is the difference between the State top-up in Auto Enrolment and traditional pension tax relief?

Traditional pension schemes offer tax relief at the employee's marginal rate (20% or 40%), meaning contributions are taken from gross income before tax. The Auto Enrolment scheme, instead of offering tax relief, provides a state top-up contribution. For every €3 an employee contributes, the state adds €1 to their pension pot. This is equivalent to a 25% tax relief, which is simpler to understand for participants, especially those at the standard tax rate or outside the tax net who receive less benefit from traditional tax relief. Employee contributions to My Future Fund are taken from net income, after deductions.

Can employees opt out or suspend contributions to Auto Enrolment?

Yes, employees can opt out of Auto Enrolment, but only during a specific two-month window (months 7 and 8) after commencement and after six months of each tri-annual contribution rate increase. If an employee opts out, they receive a refund of their own contributions, but the employer and state contributions remain in the pot. Outside of these specific opt-out windows, employees can suspend their contributions after the initial six-month mandatory participation period. Suspension can be for a minimum of one year and a maximum of two years, during which employer and state contributions also cease. No refund is given for suspended contributions as they remain invested. Employees who opt out or suspend will be automatically re-enrolled after two years if they still meet the eligibility criteria.

Who will manage and administer the 'My Future Fund' scheme?

The 'My Future Fund' scheme will be administered by a new body called the National Automatic Enrolment Retirement Savings Authority (NAERSA). NAERSA will be responsible for collecting contributions from employers and employees, investing the contributions based on employee decisions, paying out benefits at retirement, and operating online portals for both employees and employers to manage their involvement. NAERSA will use payroll data from Revenue to identify eligible employees and will send payroll notifications to facilitate contribution calculations.

How will investments be managed in the Auto Enrolment scheme?

Investment managers will be appointed through a rigorous tender process to manage the contributions in 'My Future Fund'. Employees will have a choice of four retirement savings funds with different risk profiles: conservative, moderate risk, and higher risk. There will also be a default 'life-style/life-cycle' investment profile, where the investment risk automatically decreases as the participant gets closer to retirement. If an employee doesn't express a preference, they will be placed in the default strategy. While savings are not guaranteed by the government, measures such as oversight by NAERSA, the Pensions Authority, and the Financial Services and Pensions Ombudsman will be in place to ensure careful management.

What are the implications and options for employers regarding Auto Enrolment?

Auto Enrolment will create an increased business cost for employers starting in January 2026 due to matching employee contributions. Employers will also have administrative burdens, including processing enrolment notifications, calculating and paying contributions, and managing employee opt-out/suspension requests. Employers have several options: operate only the Auto Enrolment scheme, continue existing pension arrangements and use Auto Enrolment for those not covered ('dual scheme'), or aim to make all employees members of an existing occupational scheme or PRSA to be exempt from Auto Enrolment ('single scheme'). Employers need to budget for these costs, register with NAERSA, ensure payroll software is updated, and communicate the changes to their staff. Engaging with a financial advisor can help employers assess the best approach for their workforce and business needs, including considering whether existing company schemes or products like Master Trusts or Group PRSAs might offer greater flexibility or benefits compared to My Future Fund.

Importance of Employer Action and Professional Advice

Employers need to prepare now for the January 2026 launch. This involves identifying in-scope employees, assessing costs and administrative issues for different approaches ("single scheme" vs. "dual scheme"), considering employment law and employee relations implications, and potentially making changes to existing schemes. Engaging with financial advisors is crucial for navigating these complexities.

• "Employers need to act now to ensure they are prepared for the increased cost and administrative actions."

• "The next steps for Employers should be: Identify the portion of the workforce that is within the scope of Auto Enrolment... Assessing the costs and administrative issues associated with a “single scheme” or “dual scheme” approach... Considering the employment law implications... Considering the Employee relations issues... Considering whether any benefit design changes... Training for Key Personnel."

• "Engaging with a financial broker is crucial to understand the implications of Auto Enrolment and to compare its benefits with employer-sponsored schemes."