A Financial Planning Guide for Employers

Since 1 January 2026, Ireland's auto-enrolment pension scheme has been in effect, bringing significant financial implications for employers. If you haven't already started budgeting for this mandatory scheme, now is the time to take action. Here's how to effectively plan and budget for auto-enrolment's impact on your business.

If you would like a full overview of how the My Future Fund auto-enrolment scheme operates including eligibility, contribution rates, opt-out rules and how the scheme is administered, see our guide to auto-enrolment pensions.

Understanding Your Direct Costs

The foundation of effective budgeting starts with calculating your direct payroll costs. In year one, you're required to contribute 1.5% of each eligible employee's gross salary. However, this is just the beginning.

Contribution rates increase on a phased basis over the next decade, rising by 1.5% every three years until reaching 6% in year ten. This progressive increase means your budget from five years ago won't work—you need a dynamic, forward-looking approach.

To calculate your obligations, identify employees earning over €20,000 annually who are aged between 23 and 60 and don't have a private pension. Apply the relevant contribution percentage, remembering that contributions are capped at €80,000 of gross annual salary. Don't forget to factor in corporation tax relief on these contributions when calculating your net cost.

The Challenge of Uncertainty

Budgeting for auto-enrolment isn't straightforward—there's an unavoidable element of guesswork. You can't predict with certainty which employees will opt out after six months, choose a PRSA instead, or how many will remain enrolled when automatically re-enrolled after two years.

This is where scenario-based budgeting becomes essential. Create multiple financial models based on different assumptions:

What if 80% of eligible employees remain enrolled?
What if only 50% stay in the scheme after the first opt-out period?
What if you decide to offer your occupational pension to new hires immediately versus using auto-enrolment as a stopgap during probation?

By running these "what-if" scenarios, you'll develop a range of potential costs rather than a single figure, allowing you to prepare for various outcomes.

Implementing a Rolling Budget Forecast

Given the phased increase in contribution rates, a traditional annual budget simply won't work for auto-enrolment. You need a rolling forecast that extends at least ten years and allows for regular re-evaluation.

Your rolling budget should clearly show the contribution rate increases at years three, six, and nine. Map out your projected payroll costs for each phase, accounting for anticipated staff growth, salary increases, and turnover. This long-term view will help you identify potential cash flow pressures before they become critical.

Review and update your forecast quarterly or at minimum bi-annually, adjusting for actual employee participation rates, business growth, and any changes in your workforce composition.

Creating Financial Buffers

Smart budgeting means preparing for the unexpected. The Pensions Authority must conduct an official review by year five, examining earnings thresholds and contribution rates among other factors. While significant rate increases are unlikely in the near term, prudent financial planning demands you create a buffer.

Consider setting aside an additional 0.5-1% beyond your required contributions in a contingency fund. This buffer can also help manage the cash flow impact of employees being re-enrolled after opting out, which may happen at unpredictable intervals.

For many small and medium-sized businesses, these additional pension costs sit alongside wider operational and compliance pressures, which we explored in more detail in our article on how pension auto-enrolment will impact Irish SMEs.

Budgeting for Hidden Costs

Direct contributions are just one part of the financial picture. Administrative and compliance costs add another layer to your budget:

Initial Setup Costs: HR time for employee communications, contract reviews, and system setup should be quantified and included in your first-year budget.

Ongoing Administration: Budget for continuous monitoring of employee ages and earnings, managing re-enrolments every two years, maintaining detailed records, and staying compliant with Pensions Authority requirements.

Multiple Scheme Management: If you're operating auto-enrolment alongside PRSAs and an occupational pension, the administrative burden multiplies. Consider whether you need additional HR resources or payroll software upgrades to manage this complexity efficiently.

These indirect costs can be substantial, particularly for SMEs, and shouldn't be overlooked in your planning.

Reviewing Your Total Benefits Package

To manage the long-term budget impact, you may need to review your entire benefits package. Could other benefits be restructured to offset pension contributions while maintaining overall employee value? This strategic review should be part of your budgeting process.

Taking Action Now

Auto-enrolment represents a significant, permanent addition to your payroll costs. The businesses that will manage this best are those treating it as a strategic financial planning exercise rather than just another compliance requirement.

Start by calculating your direct costs, build scenario-based forecasts, create rolling budgets that extend through the full ten-year phase-in period, and don't forget to budget for administrative expenses. With careful planning today, you can ensure auto-enrolment doesn't catch your business off guard tomorrow.

Budgeting for Auto-Enrolment