A Step Forward, But Not the Whole Story
Auto Enrolment (AE) is finally set to launch in Ireland in January 2026. (For real this time….) They have coined it ‘My Future Fund’ If you’re aged 23–60 and earning over €20,000, you’ll automatically be enrolled into a pension scheme unless you actively opt out.
The pitch is simple: you contribute, your employer matches, and the government adds a top-up. Most headlines will tell you that the government’s contribution is “equivalent to 25% tax relief.” While I don’t dispute the maths, there’s more to the story.
Why Auto Enrolment Is Being Introduced
Right now, around 800,000 workers in Ireland have no pension savings. Worryingly, about 200,000 of these are higher-rate (40%) taxpayers who stand to lose the most by not setting up their own private pensions.
The State Pension currently pays just €15,043 a year — and you can’t access it until age 66. For most people, that’s not nearly enough to fund a comfortable retirement. AE is being introduced to help bridge the inevitable gap between the State Pension and people’s actual retirement needs.
That’s the “why.” But here’s the “how” and where things get complicated.
AE vs Private Pension: The Real Numbers
Let’s compare a €40,000 (20% Tax payer) salary under both systems.
Year 1
| Auto Enrolment | Private Pension | |
|---|---|---|
| Employee Contribution | €600 | €600 |
| Employer Contribution | €600 | €600 |
| Government / Tax Relief | €200 | €120 |
| Total Pot (1 Year) | €1,400 | €1,200 |
| Employee Out-of-Pocket | €600 | €480 |
Looking at 10 Years
AE ramps up every few years. Here’s the picture after 10 years for a standard-rate (20%) taxpayer on €40,000.:
| Auto Enrolment | Private Pension | |
|---|---|---|
| Total Contributed | €30,800 | €26,400 |
| Total Cost to Employee | €13,200 | €10,560 |
This means:
- For a standard-rate taxpayer, AE builds a bigger pot… but it costs €2,640 more out of their own pocket compared to a private pension. For higher-rate taxpayers, the gap is even worse, as they lose the benefit of 40% tax relief.
Does “More Money Added = Better”?
On the face of it, yes. More in = better outcomes. As a Financial Planner I would always encourage my clients to contribute as much as they can as early as they can. But AE is primarily aimed at workers who don’t already have pensions many in lower-paid or temporary roles. For them, cashflow is tight. Even if AE delivers a slightly bigger pot, the extra reduction in their payslip could feel like a burden rather than a benefit.
Meanwhile, for higher-rate taxpayers, AE is a poor deal compared to private pensions. They would miss out on the 40% tax relief that private contributions attract putting them at a significant disadvantage if they simply stick with AE. These are the people who should be “running for the hills” and locking in private pensions now.
Access Matters Too
Another important difference:
- AE benefits can’t be accessed until State Pension age (currently 66).
- Private pensions can often be accessed earlier — sometimes from age 50, depending on the contract type.
This flexibility can be a game-changer for those who want the option of retiring before 66. With AE alone, you’re effectively “locked in” to working until State Pension age.
My Take
AE is a positive step for Ireland. It will bring hundreds of thousands into retirement saving who otherwise would never start, and that’s a good thing.
But let’s be clear:
- Lower earners may struggle with the reduced cashflow.
- Higher earners will be doing themselves a disservice if they don’t set up private pensions ahead of AE.
- Anyone relying solely on AE will have no flexibility to retire before 66.
The Bottom Line
AE should be seen as a safety net, not a gold standard. For many, it’s the start of a pension journey, not the finish line.
If you’re already in secure employment especially if you’re a higher-rate taxpayer you need to explore your private pension options before AE begins. Otherwise, you could be paying more for less flexibility.
👉 Want to know if you’re better off with AE or a private pension? Book a call and I’ll run the numbers for your exact situation so you can make the best decision for your future.
