Pension auto-enrolment is coming: Everything Irish employers need to know

What is the main purpose of the auto-enrolment scheme, and why is it being introduced now?

In Ireland, the public sector is well covered when it comes to pension coverage, but there are low levels of pension coverage in the private sector. In the private sector, considerably less than 50% of the private sector workforce has pension provision. 

The government is aware that demographically, the state pension system won’t be able to meet that shortfall. Some European countries have an earnings-related state pension system, but we don’t. We have a state pension system that pays a subsistence level of income in retirement, and in any event, that’s going to come under increasing pressure. So there’s an absolute imperative to increase private-sector coverage. 

How will it work in practice?

From an employer’s perspective, there’s a strong intention to make the system as user-friendly as possible. The concept is that it will become an addition to the existing payroll system and that the revenue will gather information on existing staff and new staff, and they will track the levels of income that those employees are earning. 

If they hit the minimum threshold, which is an annualised income of €20,000, a notification will go to the employer saying, ‘you now need to push this employee into the system’, and when the employer needs to do that, the payroll system can also manage that. 

This will have to be agreed with the employer’s payroll provider, but the payroll system can also manage the deductions. So if you pay your PAYE, you will now be paying auto-enrolment contributions as well, but to a separate place within the government system.

Do employers need to get onto their payroll provider?

There will need to be an interface between the main payroll providers and Revenue. So employers should be in touch with their payroll providers to ask what’s happening. It’s not going to happen at an individualised level, but will happen at a systems level. There is a precedent for that: when USC was introduced, there was a big project with the payroll providers and the Revenue to code that into the system. It’ll be happening at that level. There should be a significant lead-in time when that process is ongoing, and employers should be getting updates from their payroll providers.

What date will auto-enrolment start?

The official starting date was September 30, 2025, but that has now been pushed back, the Government says for a short period. Sometime in early 2026 now looks the most likely start date.

The Government would have to be collecting data for a number of weeks prior to the commencement of payroll deductions, because they won’t know who’s eligible in advance. So employers should expect to see a lot of activity on the ground before payroll deductions actually commence.

Will employers have to contribute to employees’ pension pots?

Employers will have to contribute. The initial contribution rate for an employer is 1.5% and for the employee, it’s 1.5% as well. That is unlike standard pension schemes, as that employee contribution is out of net pay after tax, not out of gross pay. That’s an unusual feature of the system. You might be saying, ’Why out of net pay? Aren’t pension contributions normally tax deductible?’ Because they are doing it a different way – they’re doing it by making an additional state contribution, so the State will contribute 0.5% on top of the employee and employer contribution. 

How will this affect SMEs?

SMEs are, as we all know, under significant cost pressures in the Irish economy. It’s a high-cost economy already, and there’s a lot of cumulative issues. Certain sectors of the economy are particularly concerned about VAT rate, the cost of renting premises, and so on. So SMEs are probably concerned about this on two fronts. 

Firstly, there’s the net cost of the contributions, and secondly, there’s the bureaucracy and administration involved when they don’t have huge infrastructures to run it. 

What the government is trying to do is minimise the bureaucracy element of it and make it something that will work within their existing payroll system as a supplement to it, rather than a whole new process they have to conduct.

When they introduced auto-enrolment in the UK 10 years ago, the government didn’t make the same level of attempts to minimise the impact on the employer in the UK, and there was a huge administrative cost involved. The Irish Government is trying to avoid that. 

The second aspect is the sheer cost of this. It starts off as a 1.5% cost on payroll in years one to three. It’s intended to taper up over a number of years, so that in year 10, it’ll be 6%, which is significant. But there is a period of assimilating that. 

The second thing is, no one is saying that running an SME business in Ireland doesn’t have its challenges in terms of cost, but this is a good thing. I mean, this is not a tax. This is a contribution that goes straight into a pot to provide retirement benefits for your staff. And it doesn’t matter if those staff are mobile, really, because even if you have a mobile workforce, you know you want your workforce to be earning some kind of retirement income. That is in everyone’s interest. So if you’re going to, shall we say, be unhappy about the cost of doing business in Ireland, this is probably the wrong thing to point the finger at. You can point the finger at rates, rents, VAT. You can point the finger at all sorts of other things the government may be doing better, or should be doing better, but in the long term, this is in everyone’s interest. Your workforce will feel more secure if they feel they are accumulating some income towards their retirement. They feel that they’re building up some kind of a fund. All of the other costs of doing business contribute nothing to your staff. 

How has auto-enrolment worked out in the UK? 

I think the experience has been surprisingly positive in the UK. So, it commenced in 2012 and was phased in over five years, and over 10.6 million people have been enrolled in the UK since it commenced. Enrolment rates have stayed very high over the period. There’s a right to opt out in the UK, as there will be here, but the retention rates have been very high, so it’s been perceived as a success. 

What about employers who already offer a good pension scheme?

The challenge for those employers is slightly different. Those employers want their staff to take their scheme. It might be better for staff than the state scheme, and they don’t want to be running two parallel schemes. So the challenge for those employers is to make sure all of their staff are in their scheme, and that could include making it a condition of employment going forward. So it’s kind of the opposite challenge to those employers who don’t have existing pension schemes.

What can happen to employers who do not comply? 

If you fail to join an eligible employee to the system, then that is an offence. It is also an offence to force employees to opt out or to suspend their contributions. Now, the second one is interesting because obviously there’s an element of proof there, whereas the first one is a little bit more straightforward. 

If an employee is eligible, and you fail to join them, you could be subject to fines or imprisonment for up to six months. You will obviously have to be prosecuted as an employer. It will be prosecuted as a criminal offense to fail to comply with your obligations.

From an employer viewpoint, obviously, there’s reputational damage to that, which might be as significant an issue as being fined. 

Because you’re locked into a pay system as a tax-compliant employer, Revenue will have all this data. You can’t pay people without Revenue being aware that you have them as an employee on your books. So that’s where the Auto-Enrolment Authority is going to draw its data to monitor compliance.

What other challenges do you foresee for employers?

I think it’s very important that employers, particularly through their representative bodies, are monitoring the implementation of the system, to ensure it is as easy to use as the government intends. Minimising the amount of management time you have to spend on this is critical.

The second aspect of it is that it is true that while it starts off at 1.5%, it does go up over time to 6%, which is quite a high figure. I think the challenge for employers may be to embed that into their remuneration system, so that by the time it is 6%, it is seen as a core part of the remuneration package, and the employer has been able to assimilate that. 

The market will dictate what an employer has to pay for staff, but this needs to be kind of embedded into the package, so that the employers are not feeling that they’re having to have one negotiation about salary at a particular level, and then they’re going to have to pay this on top. This could be the difference in earning a decent profit margin on what could be a tough business with small margins.

The challenge is to ensure that the administration cost is kept at a minimum, and that the government’s shoes are held to the fire on that, as it were. And the second challenge is to assimilate this into the remuneration systems and the understanding of staff. You know that this is for their benefit. You know this isn’t a tax on the staff. This is part of their remuneration. It’s a good thing, and it’s part of the payroll. 

Where can employers find out more?

There is good basic information on gov.ie, and a government information campaign is being rolled out, which should also provide a lot of information. Employers can also look to their representative bodies to give them information collectively on what this means for them.

If you need personalised advice on the auto-enrolment scheme, get in touch with Eversheds Sutherland by calling +353 (0)1 664 4200 or visiting eversheds-sutherland.com/en/ireland.