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Pension Comparison: Auto Enrolment vs Direct Contribution vs PRSA
In this post, we provide a comprehensive pension comparison of Auto-Enrolment, Direct Contribution Schemes, and PRSAs for Irish workers.
Understanding Ireland’s Pension Landscape
Ireland’s pension system is evolving with the introduction of Auto-Enrolment (AE) in 2026. This change will run alongside existing pension options, including Defined Contribution (DC) schemes and Personal Retirement Savings Accounts (PRSAs). If you’re an employer or employee, it’s essential to understand the differences between these plans and how they impact retirement savings.
This article compares the three primary pension pathways, highlighting their key features, contribution structures, projected returns, and how they affect different income levels.
Auto-Enrolment: A New Era in Pension Savings
The Auto-Enrolment scheme is a government-led initiative designed to increase pension coverage for workers who are not currently saving for retirement. This mandatory scheme will automatically enrol eligible employees while allowing limited opt-out options.
The fundamental difference between Auto-Enrolment and existing pension schemes lies in their tax treatment.
Key features:
- Eligibility: Employees aged 23-60 earning €20,000+ annually are automatically enrolled unless already in an occupational scheme. There’s an opt-in for those earning less.
- Contribution Structure: Starts at 1.5% from both employees and employers, with a 0.5% state top-up, gradually increasing to 6% with a 2% top-up over ten years.
- Opt-Out: Employees can opt out after a trial period, but will be re-enrolled after two years if eligibility criteria are still met.
- Tax Treatment: Employees contribute from after-tax income, receiving a state subsidy of 33% (similar to a 25% tax relief).
- Limitations: Contributions are fixed; additional voluntary contributions aren’t permitted.
Defined Contribution Schemes: Flexibility and Employer Control
DC schemes are company-sponsored pension plans that provide greater flexibility compared to Auto-Enrolment. These employer-established plans allow for customised contribution rates and investment strategies.
Key features:
- Employer Flexibility: Employers set eligibility and contribution criteria. Plans are tailored to fit organisational goals.
- Contribution Dynamics: Both employer and employee contributions are flexible, with options for Additional Voluntary Contributions (AVCs).
- Tax Benefits: Contributions are deducted before taxation, benefiting from relief at marginal tax rates (20% or 40%).
- Employer Perspective: Contributions are tax-deductible against corporation tax.
Personal Retirement Savings Accounts (PRSAs): Individual Control with Employer Facilitation
PRSAs are individual pension accounts established with financial providers but facilitated by employers. This structure creates a portable pension solution that can follow employees throughout their careers, regardless of employment changes.
Under current regulations, employers must provide access to PRSAs for employees who don’t have access to company pension plans. This requirement ensures that all workers have some pathway to retirement savings, even in the absence of a formal company scheme.
Key features:
- Portability: Employees retain ownership of their pension across job changes.
- Contribution and Investment Flexibility: While contributions can exceed those in AE, investment choices in standard PRSAs are limited.
- Retirement Flexibility: Options include tax-free lump sums or moving funds to other retirement products.
- Tax Treatment: Contributions are matched with marginal tax relief subject to certain limits.
- Employer Perspective: Contributions are tax-deductible against corporation tax.
Feature Comparison of Pension Options
| Feature | Auto-Enrolment | Defined Contribution | PRSA |
|---|---|---|---|
| Structure | Centrally managed system by NAERSA | Company pension plans under Trust | Individual contracts facilitated by employers |
| Eligibility | Ages 23-60, earning €20,000+, not in other schemes | Set by employer, may have waiting periods or other eligibility criteria | Access must be provided to employees without a pension plan |
| Employee Contributions | Phased: 1.5% to 6% over 10 years. No AVC option. | Flexible, with AVCs allowed subject to Revenue limits | Flexible, with AVCs allowed subject to Revenue limits |
| Employer Contributions | Mandatory phased contributions: 2025-27: 1.5% 2028-30: 3.0% 2031-33: 4.5% 2034+: 6.0% | Typically mandatory, rates are flexible and set by the employer. Until 2030: Either employer or employee must contribute to avoid AE. 2031+: At least 6.0% pa | Optional. Until 2030: Either employer or employee must contribute to avoid AE. 2031+: At least 6.0% pa |
| State Contribution | 33% of employee contribution | None (tax relief instead) | None (tax relief instead) |
| Tax Relief | State top-up equivalent to 25% relief | Marginal rate (20% or 40%) | Marginal rate (20% or 40%) |
| Tax Effect for Low Earners (20%) | More favourable (25% state subsidy) | Less favourable (20% relief) | Less favourable (20% relief) |
| Tax Effect for High Earners (40%) | Less favourable (25% state subsidy) | More favourable (40% relief) | More favourable (40% relief) |
| Employer Tax Treatment | Tax-deductible against corporation tax | Tax-deductible against corporation tax | Tax-deductible against corporation tax |
| Investment Options | Default age-based strategy | Typically wide range | Limited (Standard) or wide range (Non-Standard) |
| Portability | Centralised system | Generally portable | Highly portable |
| Retirement Benefits | Initially: Full lump sum Future: Likely 25% tax-free lump sum with balance to ARF or taxable lump sum | Lump sum up to 25% of fund; balance to ARF or taxable lump sum | Lump sum up to 25% of fund; balance to ARF or taxable lump sum |
For a full comparison chart, make sure to download the Pension Pathways eBook: A Comprehensive Comparison of Auto Enrolment, Direct Contributions Schemes, and PRSAs for Irish Workers.
Projected Pension Values at Retirement (Age 66)
Let’s compare projected fund values, at age 66, of two employees, one earning €40,000 and another earning €60,000, starting their pension savings in 2025:
| Starting Age | AE Scheme (€40K Earner) | DC/PRSA (AE Contribution) | DC/PRSA (Accelerated) |
|---|---|---|---|
| 30 | €556,761 | €494,791 | €607,988 |
| 40 | €263,359 | €240,334 | €309,666 |
| 50 | €100,684 | €94,139 | €136,957 |
For a higher income earner (€60,000):
| Starting Age | AE Scheme | DC/PRSA (AE Contribution) | DC/PRSA (Accelerated) |
|---|---|---|---|
| 30 | €835,142 | €879,628 | €1,080,867 |
| 40 | €395,039 | €427,260 | €550,518 |
| 50 | €151,026 | €167,358 | €242,058 |
For a full comparison chart including Projected Contributions, make sure to download the Pension Pathways eBook: A Comprehensive Comparison of Auto Enrolment, Direct Contributions Schemes, and PRSAs for Irish Workers. The core assumptions used in calculating the projected pension values are also outlined in the ebook.
Impact on Different Income Levels
For Lower Income Earners (20% Tax Bracket)
When looking at pension plans, it’s important to consider how they affect different income groups. This mainly depends on how the tax rules work for each plan.
Auto-enrolment provides more favourable tax treatment through its 25% state subsidy, making it a strong option. However, for those who can afford higher early contributions, an accelerated DC/PRSA strategy may yield better long-term outcomes.
For Higher Income Earners (40% Tax Bracket)
Higher earners benefit more from DC schemes or PRSAs due to the 40% tax relief on contributions, making these options financially preferable over Auto-Enrolment.
Practical Recommendations for Employers and Employees
Employers
- Small Businesses: Plan for phased increases in contribution rates; consider whether existing arrangements meet requirements to avoid AE.
- Medium/Large Enterprises: Review current pension schemes against AE criteria; consider enhanced terms to retain talent.
- All Employers: Budget for mandatory 6% contribution by 2034; establish systems for contribution processing.
Employees
- Early Career (20s-30s): Consider higher-risk investment strategies and accelerated contributions if possible.
- Mid-Career (40s): Balance risk and growth while supplementing AE with additional savings.
- Late Career (50s+): Consider maximum contributions immediately rather than a phased approach; review retirement timeline.
Some Closing Thoughts
Ireland’s pension landscape is changing, and Auto-Enrolment is a major step toward wider retirement coverage. However, it’s not the best fit for everyone. Higher earners may find better returns with DC schemes or PRSAs due to tax relief benefits. Understanding the options available can help both employers and employees make informed financial decisions.
For personalised pension planning, consult a qualified financial advisor.
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