Irish pensions – auto enrolment

Operation of the AE scheme

The Automatic Enrolment Retirement Savings Systems Act 2024 was signed into law in July 2024. The National Automatic Enrolment Retirement Savings Authority (NAERSA). NAERSA was set up by the Department of Employment Affairs and Social Protection (DEASP) and will administer the scheme. NAERSA will collect contributions from the various stakeholders (employees, employers, and the Government) in the scheme and invest them on the employees' behalf. Employees may choose which risk strategy to pursue, from low to medium to high.

The Pensions Authority will supervise the scheme to ensure compliance and proper management.

Contributions will be phased in over ten years, with initial employee contributions of 1.5% rising to 6% by this time. Employers will match these contributions and they will be topped up by the Government.

• No contributions will be sought or collected until the first time an employer runs payroll after 1 January 2026. 
• The State top-up and employer contributions are capped and will only apply to gross salary up to €80,000.

Key Criteria for auto-enrolment

• Age: Employees must be between 23 and 60 years old.
• Income: Employees must earn more than €20,000 per year.
• Current Pension Contributions: Employees must not currently be paying into a work or private pension through payroll.
• Employers cannot opt out of the AE scheme. Failure to comply with the AE regulations and requirements may result in penalties and potential prosecution.

Irish tax implications

• There will be no tax relief for employee contributions to AE (as the State is making a direct contribution for employees within the AE scheme).
• Employer AE contributions will not be taxed as a benefit in kind on the employee.
• Income and gains derived from investments will be exempt from Irish tax while held in an AE provider scheme.
• AE funds will be aggregated with other pension arrangements when determining whether the Standard Fund Threshold (SFT) is exceeded at retirement. Any excess over the SFT will be taxable.
• Lump sum withdrawals must be aggregated with all other pensions when considering the €200,000 lifetime tax-free limit.
• Employer AE contributions should be deductible for corporation tax purposes.

Exemption from AE requirements

Employees who are already contributing to a qualifying occupational pension scheme, Personal Retirement Savings Account (PRSA), Retirement Annuity Contract (RAC), or pan-European Pension Product (PEPP) are exempt from auto-enrolment.

AE Opt-Out and suspension

Employees can opt out of the scheme within a specific window (between six and eight months after enrolment) and can suspend contributions for up to two years. Employer and State contributions also cease during the suspension. Employees will be refunded their own contributions, while employer or State contributions will remain in the fund for the employee's benefit.

Assignees working in Ireland under foreign employments

Under the AE Act, the term "exempt employment" only covers arrangements where contributions are made through payroll to an Irish-approved occupational pension scheme, a PRSA, RAC, or a PEPP.

For employees with foreign employments who are on assignment to Ireland (assignees), the same criteria apply. If they meet the age and income requirements and are not contributing to a qualifying pension scheme through payroll, they will be included in the AE scheme unless they have an "exempt employment".

It is usual for assignees to remain in their home country pension scheme (e.g. a US 401k plan) while on temporary assignment to Ireland and, where Revenue prescribed conditions are met, employee contributions may be tax deductible against their employment income in Ireland and, employer contributions should be non-taxable. As Revenue approval of such plans is not required, the foreign pension would not qualify for exemption from AE and the foreign employer will be required to comply with the AE requirements.

Non-refundable employer contributions to AE schemes may be taxable income in the "home country" of assignees to Ireland, where they remain tax resident in their home country, as may any future growth or capital gains within the plan.

Under "tax equalisation", a foreign employer will pay an assignee's Irish tax liability arising on their employment income. AE requirements will impose additional costs and administration on the foreign employer. Foreign employers should ensure that assignees opt out of AE at the first opportunity (between six and eight months after enrolment). However, the employer contributions are not refundable.

Our view

The Government has said that it plans to introduce the new AE scheme in order to automatically enrol up to circa 800,000 employees between the ages of 23 and 60 and earning more than €20,000 who are not currently part of a pension plan. This is welcome as it will provide a retirement plan for people without a work or private pension to save for retirement. This is particularly relevant given concerns for the ability of the State to support the expected increase in the numbers of retirees in receipt of the State pension in the future.

For foreign employers, in order to relieve the various added costs, we would like to see confirmation from the DEASP that, where contributions to a foreign pension scheme are tax deductible for Irish tax purposes, the foreign pension will qualify for exemption from AE. However, until further guidance issues, foreign employers with employees in Ireland should prepare to meet their AE obligations.

If you have any questions in relation to the employment tax implications of AE, please contact a member of the Forvis Mazars employment tax team below.