What is the auto-enrolment pension scheme?

Currently, around 750,000 workers in the State have no private pension. 

This means they’ll be wholly reliant on the State pension when they get older. 

However the full State pension is less than €300 a week, so this means many workers could see a major reduction in their living standards when they retire.

Despite this, many workers are slow to enrol in pension schemes. Sometimes it’s due to inertia or the fact that their employer may not offer its own pension scheme. 

To combat this, the Government is now making it mandatory for all employees to contribute towards their own pension when they start work, which will be co-funded by the State and employers.

The draft legislation designed to set up the new pension auto-enrolment system was finally approved by the Cabinet in March 2024. 

If it passes through the Oireachtas over the coming weeks then we should see auto-enrolment finally go live sometime in late 2025 or 2026.

What are the payment rates?

For every €3 that you save into a pension, the Government will put in €1, up to a limit. 

So if you were to save €100 a month, the Government will add another €33.

On top of this, your employer will also gradually have to match any contributions you make up to 6% of your salary. This will start off at just 1.5% but gradually increase to 6% by year 10. This phased approach is designed to ease the financial impact of the changes on both employers and workers. 

In any year you can of course choose to save more - but your employer or the Government won’t be required to match it.

Is there a cap on contributions?

Both an employer’s and the Government’s contributions are capped at €80,000 gross annual salary.

So for example for the first three years the maximum amount an employer will contribute is €1,200 a year and for the Government it’s €400 a year (as this is 1.5% of €80,000) 

However, if you earn over €80,000 you can still contribute more but your employer or the Government won't match your contributions on earnings in excess of this.

Explain the enrolment process? 

Anyone between the ages of 23 and 60, and who is earning over €20,000 a year, will automatically be enrolled into the pension scheme when they start a new job unless they have their own pension or access to an occupational pension.

People under 23 and earning less that €20,000 can choose to opt in if they want to.

You’ll be able to opt-out or suspend your contributions after six months. However, you'll be re-enrolled after two years. Once re-enrolled you can again opt out after another six months if you want to - but the aim is clearly to get employees to remain enrolled. 

What will happen to the State pension?

Nothing is changing to the State pension for now at least and it will remain the bedrock of people’s income when they retire.

An employee’s PRSI payments will continue to go towards their State pension.

The aim of the new auto-enrolment scheme is to provide employees who don’t already have a private pension some extra income in retirement.  

Where will my money be saved?

As with any pension plan, your money will be invested in a mixture of stocks, government bonds, commercial property and commodities through a so-called ‘managed fund’.

It’s expected that there will be four managed funds to choose from with various levels of risk/potential returns. 

How does this compare to occupational pension schemes?

If you have an occupational pension scheme (in other words a pension provided by your employer/company) your pension will work a bit differently.

Most company pension schemes also match an employee’s contributions up to a certain limit - 5% is average but it can be up to 10% in some cases. So potentially more generous than auto-enrolment, especially for the next 10 years. 

Also, while the Government doesn’t contribute to the pension per se, you pay no income tax on any contributions that you make up to a certain limit.

If you pay tax at the top rate of 40%, this is the equivalent of the Government giving you back €40 for every €100 that you save. So more generous than the €33 on offer with the auto-enrolment scheme.  

However, if you earn under €42,000 as a single person and therefore only pay tax at 20%, this is the equivalent of the Government giving you €20 back for every €100 that you save. So less generous than the auto-enrolment scheme.

In other words, for many people, particularly those earning over €42,000 a year, it’ll be better to save into an occupational pension if one is offered by their employer. 

However, the new auto-enrolment scheme is aimed at workers in lower-paid jobs where until now pension coverage has been lacking or non-existent.  

Will I end up with multiple pensions from multiple jobs?

No. The idea is that you'll have a single auto-enrolment retirement account into which you and different employers from different jobs will contribute. Your PPS number will likely be used as your identifier.

However, as is presently the case, if you start a job with an employer which runs its own occupational pension scheme and you join this, then you may end up with different pensions from different jobs.  

Does a scheme like this exist elsewhere?

Several countries have automatic pension schemes and they are viewed as a good way to get people saving for a pension early. 

Anyone who has travelled to Australia to work for the year might remember receiving "superannuation". This is a 12% contribution which employers have to pay towards every worker's pension.  

And in the UK a similar scheme was introduced in 2012 where it has been credited with hugely expanding pension coverage.

I'm self-employed - does auto-enrolment affect me?

No. Auto-enrolment is for PAYE workers only. If you're self-employed your existing pension options remain unchanged. 

Check out our other articles

If you found this guide helpful, why not take a look at our personal finance articles?

• Read our beginners’ guide to pensions here. 
• Did you know that if you work from home, you may be eligible for e-worker tax relief? Find out everything you need to know about making a claim here.
• Discover how to apply for a tax refund and what you can claim for in this guide.

You can stay up-to-date with the latest personal finance news over on our blog and guide pages.

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