Auto-Enrolment
The introduction of the long awaited Auto-Enrolment Retirement Savings Scheme, called My Future Fund, is postponed to start from 1 January 2026. This new pension savings scheme is designed for employees who are not currently contributing to a pension.
Under the scheme, the employee, employer, and Government all pay a certain amount into the employee’s pension fund.
Who will be auto-enrolled?
Employees will be automatically enrolled, if they
- earn more than €20,000 per year
- are aged between 23 and 60
- are not already in an occupational pension scheme
Employees can choose to enroll, if they
- do not have a pension scheme
- earn less than €20,000 per year
- are aged outside, the 23 - 60 bracket
How does it work?
For every €3 the employee puts in, the employer puts in €3, and the state adds €1, resulting in €7 left in the employee's account.
| Employee | Employer | State | Employee's account | |||
|---|---|---|---|---|---|---|
| €3 | + | €3 | + | €1 | = | €7 |
Contributions
Contributions are calculated on employee’s gross earnings up to €80,000 per year. It's important to note, that employee contributions are not relieved for tax, USC, or PRSI, but the state top up of €1 for every €3 paid by the employee is equivalent to 25% tax relief.
| Year 1-3 | Year 4-6 | Year 7-9 | Year 10+ |
|---|---|---|---|
| 1.5% | 3% | 4.5% | 6% |
Budget 2025: Taxation of the Auto-Enrolment scheme
Auto-enrolment employee contributions do not receive the same income tax relief, but a 33% bonus from the Government. Employees under auto-enrolment will bear the full burden of salary contribution without the cushion of income tax relief. This means if a single person earns €42,000 or less, and thus pays only 20% tax, the auto-enrolment pension will be more beneficial. But for the most part, a private pension will be more beneficial.
What happens when you retire?
Up to now there has been very little detail on how benefits from AE will be paid and taxed in retirement.
We do know however, that Auto-Enrolment funds will be taxed on draw down, other than 25% of the fund which is paid as a lump sum, and usual will apply. In the first few years of Auto-Enrolment retiring employees will receive a lump sum payment, and more retirement options such as annuities will be developed.
