Auto-enrolment: Employers must carefully consider the options before choosing a path
AE is designed to significantly increase pension savers by automatically enrolling employees aged between 23 and 60 who earn more than €20,000 a year in a new State-run retirement benefits plan called “My Future Fund (MFF)”.
Avoid sleepwalking into a pension that isn't the best option available to you, advises , Head of Insured Pensions, Mercer
If you make it to retirement age in Ireland, you can reasonably expect to live another 20 years after that. In general, this is a wonderful thing – but a longer life must be funded. Employees know this, and they value an employer that helps them prepare for it.
Private pension coverage in Ireland has historically been patchy. Certain industry sectors, such as retail, food services and SMEs, tend to have lower coverage levels than, say, financial services and large employers.
A December 2024 release by the Central Statistics Office reported that under 60% of workers were members of an individual or occupational pension plan. The government’s plan to address low pensions coverage is to introduce auto-enrolment (AE). This is a new set of pension requirements that effectively makes retirement saving mandatory in Ireland for the very first time.
Launching in January 2026, AE is designed to significantly increase pension savers by automatically enrolling employees aged between 23 and 60 who earn more than €20,000 a year in a new State-run retirement benefits plan called “My Future Fund (MFF)”. In MFF, both employees and employers will be required to pay 1.5% of the employee’s earnings.
The State will also pay a top-up of 0.5%. These minimum contribution obligations apply for the first three years and then rise proportionately in gradual three-yearly steps. This will result in a more meaningful aggregate contribution of 14% by 2036, with 6% paid by both employees and employers, and 2% paid by the State. Crucially, however, any employee who is already saving in an occupational pension will be fully exempt from inclusion in MFF.
Unsurprisingly, a new mandatory pensions savings system creates challenges for employers: Whom will it affect? How much will it cost? How does it fit in with existing pension plans? What are employees going to be concerned about? With commencement only a few months away, any employer who hasn’t started thinking about AE and its implications is sleep-walking into potentially unwanted outcomes.
This could be particularly true for SMEs, many of whom are not familiar with workplace occupational pensions. It’s vital that they understand the options available.
Employers have a key decision to make at the outset: do nothing and let the employee be auto-enrolled into MFF or offer the employee an occupational pension plan. Making that decision means understanding some of the key differences between the two systems.
MFF is a mass savings vehicle aimed at workers who have never saved for their retirement benefit – typically lower-paid and/or more transitory workers. To allow it to operate at scale, MFF has been designed with some particularly rigid and inflexible features. Contributions cannot be changed (either up or down); the range of investment options is very limited; funds cannot be transferred in or out; and funds are not available at any time before the employee reaches State pension age (currently 66).
By contrast, occupational plans provide more flexibility in all these areas while providing benefits for staff (such as life assurance) that MFF cannot. Occupational plans can also be tailored to an employer’s requirements, and many workplace options are available at different price points. Master trusts, which provide the features of an occupational plan on a fully bundled, outsourced basis, are particularly popular among price-conscious employers looking for a suitable vehicle without the complexities and cost burden of operating a plan themselves.
Employees saving in occupational plans get tax relief on their contributions at their marginal rate. This means that higher-rate taxpayers get 40% relief and standard-rate payers get 20% relief. Employee contributions to MFF are not eligible for tax relief: instead, the State top-up is paid in lieu and effectively provides 25% relief irrespective of earnings levels. Clearly this is disadvantageous for higher earners.
While MFF appears to be a better option for standard-rate taxpayers, this ignores two key points. Firstly, in Ireland, most employers tend to offer more than the fixed contribution rate of 1.5% of earnings. Secondly, where an employee is concerned about the financial impact of AE, their employer can design an occupational plan that allows them to suspend contributions while still receiving the employer contribution. In contrast, opting out of MFF means that all contributions – including the State top-up – will stop.
Whether MFF or an occupational plan is better for employees depends on the individual’s circumstances. Employers should seek professional advice to carefully evaluate what’s best for them and their employees.
The Government commenced its AE multimedia advertising campaign in July 2025. Employers should expect increasing awareness of AE from employees and potentially an increase in queries. Communicating employers’ intentions and rationale to employees and their representatives will be an integral part of preparing for AE – even if just to confirm that it has no impact.
Employers are expected to receive the first AE payroll notifications in December 2025 confirming who will be affected and what employers must do from 1 January to arrange contribution. Urgent action is therefore needed for employers looking to set up a new master trust plan of their own. To ensure exemption, they will need to engage with payroll and pension providers and communicate key decisions to staff before the enrolment process. Ideally, this should be done before the end of November. Any later risks enrolment of employees into MFF.
The intentions of AE are worthy in terms of increasing the numbers of workers saving for retirement. But for employers, AE is more complicated than it first appears. Time is quickly running out to take advantage of the options available.
