Ireland’s new pension auto-enrolment system, originally set to commence on 30 September 2025, has now been postponed until January 2026 to allow additional time for the implementation of necessary systems and infrastructure.
Under the new system, referred to as “'My Future Fund,” employees aged between 23 and 60 who earn more than EUR 20,000 per year and who are not currently part of an occupational pension plan will be automatically enrolled. Employees aged 18-23 and 60-66 who are not in exempt employment (i.e., employment with an existing pension provision) may voluntarily opt into the scheme, subject to certain conditions. For prior coverage, see Ireland - Pension Auto-Enrolment Scheme - BDO).
Contributions will be made by employees, employers, and the government. Both employer and employee contributions will start at 1.5% of gross salary and increase every three years by 1.5%, up to a maximum of 6%. The state will contribute EUR 1 for every EUR 3 contributed by the employee, with all contributions calculated based on a maximum gross salary of EUR 80,000.
Employee contributions will not qualify for income tax relief. However, the state's contribution indirectly compensates for this loss of tax relief.
Employees can opt out of the scheme after six months. If they choose to opt out, they will be refunded their own contributions since enrolment, but the employer and state contributions will remain in the fund for their benefit. Employees who opt out will be mandatorily re-enrolled after two years but may elect to opt out again at that time.
The new start date, which will align with the start of the 2026 income tax year, is generally welcome, as neither the relevant government agencies nor employers would have been in a position to meet the proposed 30 September 2025 start date.
The government is expected to issue detailed guidance on the practical operation of the auto-enrolment system for employers, but the following issues arise specifically in respect of cross-border workers based on the legislation as drafted.
Employees of a foreign company working in Ireland and subject to Irish payroll withholding on employment income fall under the new system, even if part of a foreign pension scheme. The definition of “exempt employment” covers contributions made through payroll to an Ireland-approved pension scheme, qualifying PRSA, or qualifying PEPP. Foreign pension arrangements usually require formal approval from Irish Revenue. For expatriates covered by tax equalisation policies, these contributions will increase assignment costs. Employers must ensure employees meet opt-out requirements to manage expenses.
Not all foreign employees working in Ireland are subject to Irish payroll reporting. Certain short-term business visitors and expatriates who typically spend less than six months in Ireland within a tax year may be excluded from this requirement. However, employers must submit an application to Revenue for employees that spend more than 60 workdays in a tax year in Ireland to avail themselves of the payroll withholding exemption. It is important to track these employees and submit the necessary applications promptly to avoid PAYE obligations and potential pension auto-enrolment contributions becoming due.
Non-resident employees of an Irish company working overseas who have an Irish PAYE Exclusion Order (PEO) obtained by their employer are not subject to auto-enrolment during the period the PEO is active. A PEO removes an employer’s obligation to operate Irish payroll tax withholding.
When an Irish employee works overseas but remains within the auto-enrolment scheme and is subject to foreign tax on employment income, the foreign tax treatment of the scheme will need to be assessed. It may be that the employer and state contributions, as well as any annual investment returns within the auto-enrolment fund, are considered taxable income in the foreign jurisdiction if the scheme is not recognised as tax-exempt there. Consequently, the employer may have to provide tax protection for the employee concerning such additional host liabilities.
For more information on the new system, please consult your regular BDO contact or the author of this article.
Mark Hynes
BDO in Ireland
New System
Under the new system, referred to as “'My Future Fund,” employees aged between 23 and 60 who earn more than EUR 20,000 per year and who are not currently part of an occupational pension plan will be automatically enrolled. Employees aged 18-23 and 60-66 who are not in exempt employment (i.e., employment with an existing pension provision) may voluntarily opt into the scheme, subject to certain conditions. For prior coverage, see Ireland - Pension Auto-Enrolment Scheme - BDO).Contributions will be made by employees, employers, and the government. Both employer and employee contributions will start at 1.5% of gross salary and increase every three years by 1.5%, up to a maximum of 6%. The state will contribute EUR 1 for every EUR 3 contributed by the employee, with all contributions calculated based on a maximum gross salary of EUR 80,000.
Employee contributions will not qualify for income tax relief. However, the state's contribution indirectly compensates for this loss of tax relief.
Employees can opt out of the scheme after six months. If they choose to opt out, they will be refunded their own contributions since enrolment, but the employer and state contributions will remain in the fund for their benefit. Employees who opt out will be mandatorily re-enrolled after two years but may elect to opt out again at that time.
The new start date, which will align with the start of the 2026 income tax year, is generally welcome, as neither the relevant government agencies nor employers would have been in a position to meet the proposed 30 September 2025 start date.
Cross-Border Issues
The government is expected to issue detailed guidance on the practical operation of the auto-enrolment system for employers, but the following issues arise specifically in respect of cross-border workers based on the legislation as drafted.Employees of a foreign company working in Ireland and subject to Irish payroll withholding on employment income fall under the new system, even if part of a foreign pension scheme. The definition of “exempt employment” covers contributions made through payroll to an Ireland-approved pension scheme, qualifying PRSA, or qualifying PEPP. Foreign pension arrangements usually require formal approval from Irish Revenue. For expatriates covered by tax equalisation policies, these contributions will increase assignment costs. Employers must ensure employees meet opt-out requirements to manage expenses.
Not all foreign employees working in Ireland are subject to Irish payroll reporting. Certain short-term business visitors and expatriates who typically spend less than six months in Ireland within a tax year may be excluded from this requirement. However, employers must submit an application to Revenue for employees that spend more than 60 workdays in a tax year in Ireland to avail themselves of the payroll withholding exemption. It is important to track these employees and submit the necessary applications promptly to avoid PAYE obligations and potential pension auto-enrolment contributions becoming due.
Non-resident employees of an Irish company working overseas who have an Irish PAYE Exclusion Order (PEO) obtained by their employer are not subject to auto-enrolment during the period the PEO is active. A PEO removes an employer’s obligation to operate Irish payroll tax withholding.
When an Irish employee works overseas but remains within the auto-enrolment scheme and is subject to foreign tax on employment income, the foreign tax treatment of the scheme will need to be assessed. It may be that the employer and state contributions, as well as any annual investment returns within the auto-enrolment fund, are considered taxable income in the foreign jurisdiction if the scheme is not recognised as tax-exempt there. Consequently, the employer may have to provide tax protection for the employee concerning such additional host liabilities.
For more information on the new system, please consult your regular BDO contact or the author of this article.
Mark Hynes
BDO in Ireland