Ireland pensions auto-enrolment: Guide for payroll and HR

The Republic of Ireland pensions auto-enrolment is almost upon us. After 25 years of debate and discussion, there will be a workplace pension scheme in Ireland for the first time, launching in 2025. Here are the key facts that payroll and HR professionals need to know.

*UPDATED 15/04/2024*

There are currently about five workers per retiree paying tax and pay-related social insurance (PRSI) to fund the current system. But this figure will drop to just two workers by 2050. As the older population grows relative to the working-age population, the financial burden will increase. The new auto-enrolment scheme is in part a response to this.

The aim is to encourage pensions saving by making it easier for employers to provide their workforce with an occupational pension scheme. A further goal is to simplify the decision-making process for employees.

This major reform in the Irish pensions landscape is intended not just to get people saving earlier, but to support them in that saving process by simplifying the pension choices, and importantly, by providing for significant employer and state contributions as well.

Heather Humphreys, Minister for Social Protection

What’s in the new Ireland pensions auto-enrolment scheme?

The Automatic Enrolment Retirement Savings System (‘auto-enrolment’), is a new workplace pension scheme being rolled out by the Irish government. The key beneficiaries are some 750,000 private sector workers between the ages of 23 and 60. These employees earn more than €20,000 per annum but are not currently part of an occupational pension scheme.  

Eligible employees will be enrolled automatically, unlike members of existing workplace pension schemes who will not. People who come in below the allotted income threshold, or are outside the designated age bracket, have the choice of opting into the system if they wish.  

A new Central Processing Authority (CPA) will assess the eligibility of casual workers, part-timers and new joiners on probation. The CPA will be responsible for overseeing and operating the auto-enrolment system. One of its key aims is to minimise employers’ administration costs by capping management charges at 0.5% per annum of the assets under management. 

Can automatically enrolled employees opt out? 

Participation in auto-enrolment is optional and operates on an opt-out basis. This means employees who have been automatically enrolled in the scheme can choose to withdraw or suspend participation after six months.

People opting out will be automatically enrolled again after two years but have the option to remove themselves after a further six months.

When will pension auto-enrolment in Ireland begin and how is it calculated? 

The auto-enrolment scheme is scheduled to launch in January 2025.

Contributions will gradually be phased in over the course of 10 years.

• Employees will initially pay 1.5% of their gross income into the scheme
• Employers will match this contribution
• The state will provide a 33% top-up on each employee contribution (€1 for every €3 saved)
• Employee and employer contributions will increase every three years by 1.5%, until reaching 6% of the employee’s gross income
• Employer and state contributions will be subject to an earnings threshold of €80,000

Employees will not be required to join a new scheme if they change jobs, as the system will operate on a ‘pot follows the member’ basis. They will be able to view their account on an online portal run by the CPA. This will track contributions, balances, and investment return. It will also allow participants to update information or suspend payments.

If an individual decides to withdraw from the scheme, they will only get back their own contributions up to that point, but not those made by either their employer or the state.

Will employees get a choice of funds to invest in?

Employees will be able to choose from four retirement saving funds, depending on their investment risk appetite.

The first targets conservative investors, the second moderate risk-takers, and the third is a higher-risk fund. The fourth is a default fund that will automatically enrol employees who don’t express a preference.

What does auto-enrolment mean for tax?

Employees will not receive tax relief on their contributions. However, they will receive a benefit-in-kind tax exemption on their employer’s contribution. Employer contributions are deductible for corporation tax purposes. 

How can employers prepare for auto-enrolment?

The government wants to minimise the administrative burden on employers. So, you will not be responsible for running it. But employers do need to assess which employees are eligible and enrol them in the system.

By the time the scheme launches, ensure your payroll solution can:

• Calculate, deduct, and remit contributions (to the CPA) from employees’ net income after income tax, PRSI, and the Universal Social Charge (USC)
• Record employee contribution levels

Other activities you should plan:

• Update employment contracts, with the help of Legal, to ensure they make provision for pension contributions
• Work out a communications plan to inform employees of the forthcoming changes. Include details of the scheme, the fund options, how much each party contributes, and the tax implications.

What will Zellis do to help organisations with auto-enrolment?

We’ve already begun preparing to support in-scope employers in complying with the new legislation and regulations. The solution will consist of a means of identifying employees who are eligible for enrolment, via integration with the proposed Central Processing Authority (CPA) systems.

It will apply the appropriate calculations to those employees for contributions using the legislative business rules, calculate the correct contributions during payroll processing, and then remit the calculated figures back to the CPA.

At Zellis, we envisage being well positioned to leverage our powerful web service solutions, which currently facilitate all data exchanges between our clients and Revenue, to provide a similar robust, secure, and transparent solution for auto-enrolment.”

Seán Murray, Director of Product Services Ireland, Zellis

Zellis offers leading Irish payroll software that helps organisations manage pensions, benefits and more. Learn more here.