Auto Enrolment (AE) shines spotlight on pension coverage and adequacy in Donegal
The advent of the Auto Enrolment (AE) Retirement Savings System is one of the most significant and welcome developments in the pensions landscape for very many years. Regardless of what else Auto Enrolment (AE) achieves when it eventually becomes a reality, it has already succeeded in shining a spotlight on the pensions issue in Ireland and has generated unseen levels of interest in the topic with us in Donegal. It will be called ‘My Future Fund‘.
Auto-enrolment enquires increased
We have seen an increased number of enquiries from employers in Letterkenny and Donegal in general, wishing to set up a pension arrangement for their employees or to make improvements to their existing arrangements.
It is also evident in the recruitment market where employers we speak with are reporting a heightened focus on retirement benefits on the part of candidates of all ages.
Employers are also noting an impressive level of technical knowledge in relation to pensions on the part of candidates.
Auto Enrolment is aimed at addressing the needs of the vast swathe of the Irish workforce which currently has no occupational pension provision. According to government figures, there are approximately 800,000 workers over the age of 23 and earning at least €20,000 per annum* currently in that position.
At present, they face the prospect of their sole income in retirement being the State Pension (Contributory) of €15,043 per annum at the current maximum rate**. (figure correct as of 21/01/2025)
AE will therefore represent a major step forward. But it must be borne in mind that it will not necessarily provide a solution for everyone and in many cases will offer benefits that are actually very different and may not suit those already enjoyed by members of workplace pension schemes.
Contribution levels to the Auto Enrolment System will start at an extremely low level and won’t reach the same levels as those of many workplace schemes for several years.
Auto Enrolment (AE) uncertainties in Letterkenny, Donegal
There are many unknowns and uncertainties swirling around the auto-enrolment proposal at present. Chief among them is the start date, the proposed start date for Auto Enrolment is now January 2026.
When it comes to tax relief there is a very clear difference. With a pension, an employee paying income tax at the 40% rate effectively receives tax relief at the marginal (highest) tax rate. However, if they become a member of the Auto Enrolment system the State will provide a top-up equivalent to 33% of the employee contribution*. In effect lower tax relief. This is in effect tax relief at 25%.
That equation changes in favour of the employee if they are paying tax at the standard rate of 20%, of course. Again, this highlights the potential utility of the new AE system for employees in lower-paid areas of the economy.
The enrolment process?
Employees between the ages of 23 and 60, and earning over €20,000 a year, will automatically be enrolled into AE, unless they they are members of an occupational pension scheme or employer sponsored PRSA.
Employees with multiple sources of income will be auto enrolled if their total income from all sources is €20,000 or over. Example of an employee with multiple income sources.
| Gross Salary | Employee | Employer | Sate | |
| Job A No Pension |
€10,000 | 1.5% of €10,000 €150 |
1.5% of €10,000 €150 |
0.5% of €10,000 €50 |
| Job B Existing Pension |
€15,000 | No AE Contribution |
No AE Contribution |
No AE Contribution |
| Total | €25,000 | 1.5% of €10,000 €150 |
1.5% of €10,000 €150 |
0.5% of €10,000 €50 |
Employees will be able to opt-out of AE after 6 months, in months 7 & 8 and get the value of their contributions back. Employee will be allowed to suspend their contributions after six months if they want to. However, they will be re-enrolled after two years. Once re-enrolled they can again opt out after another six months if they want to – but the aim is clearly to get employees to remain enrolled. If suspended after month 7 & 8 no refund of contributons is applied.
The alternatives are
2: PRSA.
Why a Pension Scheme might make sense
A Pension Scheme under a Master Trust is simply a defined contribution company pension scheme set up under a trust. It differs from traditional Defined Contribution pension schemes in that multiple employers all coexist under the one trust deed, hence the term ‘master trust’.
Employers struggling with onerous new responsibilities in relation to their pension schemes brought about by the recent pension legislation changes have the option of moving their scheme into a Master Trust structure where all those obligations are looked after in a professional and cost-effective manner.
Companies can outsource all the governance and administrative obligations to the Master Trust.
A Master Trust is designed to comply with the enhanced member communication requirements contained in IORP II (Institutions for Occupational Retirement Provision) as well as with the new obligations in relation to investment strategies.
This is clearly very attractive for the many hundreds of mid and large-sized employers where the additional costs and governance requirements associated with IORP II compliance could detract from enhancing member benefits in the long run.
Why a PRSA might make sense
A Personal Retirement Savings Account (PRSA) offers significant advantages over waiting for auto-enrolment, making it an attractive option for proactive retirement planning. Some of the mean advantages are:
Contributions: Employers can make higher contributions to an employee’s PRSA , up to 100% of employee’s income. (as of Jan 2025).
This provides greater flexibility in rewarding employees and managing company finances.
Tax efficiency: Employer contributions to PRSAs qualify for income tax relief, making them a tax-efficient way to compensate employees and reduce the company’s tax liability.
Reduced administrative burden: PRSAs require less administrative oversight compared to occupational pension schemes or auto enrolment.
Flexibility for employees: PRSAs are portable, allowing employees to continue contributing even if they change jobs. This can be an attractive benefit for potential hires.
Simpler death benefits: In the event of an employee’s death, PRSA funds can be paid in full to the deceased member’s estate, which is simpler than the restrictions placed on occupational pension schemes
Attractiveness for business owners & Directors: PRSAs can be particularly advantageous for company directors, especially those on low salaries with limited scope to fund under auto enrolment and occupational pension scheme, or those with large profits seeking immediate tax relief
Need help assessing which option suits your business best? Give us a call at 074 910 3938 or email us.
Employers in Donegal need to take action
Employers need to pre-empt the arrival of auto-enrolment in Jan 2026. Unless they establish some sort of Pension Arrangement which provides contributions and benefits at least equal to those required under AE, then the Employers will have no option but to ensure that their employees are Auto enrolled in the government-proposed AE system.
Of course, there is also a large cohort of smaller firms operating in some sectors which do not currently have a pension scheme in place and probably have no intention of establishing one. The auto-enrolment system will certainly play an important role in boosting the retirement incomes of workers in those firms.
Example of savings through auto-enrolment
For every €3 saved, the Government will put in €1, up to a limit. So, if a worker were to save €100 a month, the Government will add another €33. On top of this, an employer will also have to gradually match any contributions made by up to 6% of the salary. This will start off at just 1.5% but gradually increase to 6% by year 10.
| Year | Employee Contribution | Employer Contribution | Government Contribution |
| 1-3 | 1.5% | 1.5% | 0.5% |
| 4-6 | 3% | 3% | 1% |
| 7-9 | 4.5% | 4.5% | 1.5% |
| 10+ | 6% | 6% | 2% |
Source: gov – Auto-enrolment (www.gov.ie)
Who will run My Future Fund?
The National Auto Enrolment Retirement Savings Authority (NAERSA) will
- Collect Contributions
- Allocate Investment returns
- Operate online portal for employers and employees
- Offer Back Office support
- Communicate and Provide Information
Attracting and retaining employees
Employers need to consider their options carefully at this point. Employees and job candidates have become a lot more sophisticated in terms of their pensions knowledge and this is having an increasing influence on their choice of employer.
Companies that offer a defined contribution pension scheme with contribution levels designed to deliver an adequate pension in retirement will enjoy a distinct advantage in the talent market while also enjoying an enhanced employer brand.
They can achieve that with the Master Trust Pension Scheme which will offer active investment performance, governance expertise, and streamlined administration, all in a highly cost-effective package.
Source: *gov – Auto-enrolment (www.gov.ie)
Source: **gov – Auto-enrolment (www.gov.ie)
The information contained herein is based on Advice First’s understanding of current Revenue practice as of May 2025 and may change in the future.
Please contact Advice First Financial to learn more about Company Pensions.
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Employer if you want to learn more about getting auto-enrolment ready,
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Auto Enrolment Letterkenny & Donegal FAQ's
What is auto-enrolment?
Auto-enrolment is a pension savings plan rolled out by the government. It aims to improve Irish workers’ retirement outcomes, called My Future Fund. Currently, there are over 750,000 workers in Ireland without pension savings. This means they may only have the State Pension, (currently €265 per week), to retire on – meaning a huge drop in their living standards when they retire. The Government want employees, employers and the State to contribute to a fund for retirement and it will be mandatory for almost anyone who does not have a pension in place.
Learn more via Advice First Financial on-site consultation or call us.
How does auto-enrolment work?
Through auto-enrolment, employers must contribute to a workers’ pension plan. Employees will have access to a workplace pension plan which is co-funded by their employer and the State. Workers who are not currently part of a pension plan, aged 23 years and older, and earn €20,000 or more per year will be automatically enrolled into the new workplace pension plan.
A key feature of the system is that although participation is voluntary, it operates on an ‘opt-out’ rather than an ‘opt-in’ basis. If after six months a worker wanted to opt out, they can but they will be re-enrolled again after two years. The aim is to encourage workers to recognise the importance of saving for retirement through a pension plan.
When is Auto Enrolment due to start?
The Government plans to introduce auto-enrolment in Ireland Sept 2025. It has been in the works for almost two decades and is closer to realisation than ever before.
What if I’m already part of a workplace/company pension plan?
If you are saving into a workplace/company pension plan, nothing will change for you when auto-enrolment comes into play. Previously, the onus was on employees to join a pension plan but with auto-enrolment, the onus will now move to employers to ensure they offer a workplace pension to all employees who are eligible to join.
A workplace/company pension is set up by an employer. Employees usually pay in a set portion of their salary, and this can be increased at any stage. Employers usually make contributions on behalf of their employees to top up their pension savings. This is an advantage that makes workplace/company pensions appealing, and employees also benefit from the generous tax relief available on employee contributions.
What does it mean for employers?
Most large employers in Ireland have existing pension plans in place so may feel they will not be impacted by these changes. But often membership of these plans is voluntary, meaning that not all employees have become members of the plan. Therefore, employers will need to decide whether to open their existing plans up to all employees to auto-enrol all non-members to their existing plan or to instead allow for the auto-enrolment of non-members to the new State auto-enrolment system.
Smaller employers will also need to decide if they should enter the State auto-enrolment system or put in place flexible traditional occupational scheme or PRSA which affords generous tax relief.
Is everyone entitled to the State pension?
In a yes, there are 2 types of state pension, contribution and non-contributory which is means tested.
To qualify for the Contributory State pension, you must have started paying social insurance before reaching 56 years of age. You must have paid at least 520 full-rate social insurance contributions and have a yearly average of at least 48 paid and/or credited full-rate contributions from the year you started insurable employment until you reach 66 years of age. If you don’t have the above, then you must have a yearly average of at least 10 paid and/or credited full-rate contributions from the year you started insurable employment to the end of the contribution year before you reach the age of 66.
In order to help provide for your retirement, starting a pension is one of the smartest financial decisions you can make. When choosing a pension, having all the information you need is key.
Sound advice is invaluable, so it’s a good idea to seek advice from a financial advisor. Visit us in our Advice First Financial Office or give us a call. As a trusted financial advisor, we can guide you through the process and help you select the right pension plan for your circumstances.
I am a 20% taxpayer would I be better off in Auto Enrolment.
I am a 20% taxpayer would I be better off in Auto Enrolment or paying into a company pension scheme.
A 20% taxpayer might choose to pay into a company pension rather than rely on auto enrolment for several reasons:
Tax Relief: Company pension contributions receive income tax relief at the individual’s marginal rate—20% for standard rate taxpayers. Auto enrolment, by contrast, provides a government top-up of €1 for every €3 contributed by the employee, which is also equivalent to 25% tax relief.
Contribution Flexibility: Company pensions allow higher and more flexible contribution rates (up to age-related limits), including Additional Voluntary Contributions (AVCs) and one-off lump sums, while auto enrolment has fixed contribution rates and does not allow AVCs or extra payments.
Investment Choice and Retirement Options: Company pensions typically offer a wider range of investment options, more flexibility in retirement age (often from age 50 or 60), and more control over retirement benefits, such as lump sums and Approved Retirement Funds. Auto enrolment is more restrictive in these areas.
Employer Contributions: Company pension schemes may offer higher employer contributions than the minimum required under auto enrolment, potentially increasing retirement savings.
In summary, a 20% taxpayer may prefer a company pension for its flexibility, potentially higher employer contributions, broader investment choices, and the ability to make additional contributions—all while still receiving tax relief at their standard rate.
Does Company Directors need to be Auto Enrolled
Whether a company director will be enrolled in auto-enrolment (AE) depends on the PRSI class under which they contribute:
-
Directors who pay PRSI as employees (typically Class A) and meet the other eligibility criteria (aged 23–60, earning €20,000 or more, not already in a pension scheme) will be enrolled in AE
- Directors registered as self-employed (usually Class S PRSI) are not eligible for AE and will not be enrolled PRSI class is the key determinant for directors: only those classified as employees for PRSI purposes are included in AE; self-employed directors are excluded
If we have a new employee in 10 years time, what will the AE contribution need to be?
So, in 10 years’ time everyone will be on 6% employee, 6% employer, and 2% Government contributions?
Will it be possible for employees to track their AE account?
Employees will be able to track the contributions amounts and the valiue of their AE account through a portal, which members will be able log into.
