Auto enrolment hasn’t even started yet but it is causing lots of grumbling amongst employers and the pension industry. We welcome the introduction of auto enrolment as a concept as not enough people are saving for their retirement.
The scheme starts on 1 January with employees need to have had signed up to an occupational pension scheme from November payroll to avoid being auto enrolled. For something that is 20 years in the planning, the awareness of it is poor. I am still talking to new clients looking to start a pension who have never heard of auto enrolment until I mentioned it to them. That is just one of the many problems that we have already.
If you are a member of an occupational pension scheme in work, you are exempt from joining auto enrolment. The majority of schemes are genuine and set up for the benefit of their employees but it has given unscrupulous employers a way out.
The minimum contribution for PRSAs with some providers is €10 per month. These life companies have seen an influx of PRSA schemes from employers contributing €10 a month to a new occupational pension scheme, thereby exempting themselves from auto enrolment and reducing the amount they have to pay into their employee’s pension.
The government have promised to introduce emergency legislation, setting minimum contribution by employers. This in itself will create issues on what salary is to be used. Many schemes (especially the public service pension) have a “pensionable salary” which factors in the State pension and is used to reduce their cost. The Department of Social Protection (DSP) could find themselves all tied up on this one.
Tax relief on auto enrolment is 30% regardless of income. From what I hear, this decision was made against all advice from those consulting on the framework of the scheme and was made by someone in the DSP.
I have spoken to employers who want to do the best for their employees and offer them the most tax advantageous scheme. It is not as simple as offering a private pension for those paid over €44,000 and auto enrolment for those under.
Take this example. Two employees are married to each other, one earns €40,000 and the other earns €53,000. They are jointly assessed for tax purposes. The higher earner spouse is taxed at 20% and the lower earner is taxed at 20% on €35,000 and the rest at 40%. In this case, the higher paid spouse should be in the auto enrolment scheme and the lower paid on in the private scheme. But if they were separate assessed, it is the other way around.
What if someone got a pay rise and moves into the higher tax bracket. You have to take them out of auto enrolment and join the scheme. They subsequently decided to reduce their hours and back down to the auto enrolment scheme. Or they get married and are jointly assessed and back into the higher rate bracket. Have the same tax relief for both. It is an unnecessary mess.
The DSP has promised very low fees for the auto enrolment scheme, which is very good for investors. Until we find out that these low fees are contingent on a certain amount of people signing up. If half the estimated people sign up, fees will double.
Running a scheme on variable fees is not how you run a scheme. People like certainty and to tell them that the fee depends on how many signs up smacks of amateurism.
Steven Barrett
1 December 2025