Budget 2026 & Your Retirement: What You Need to Know

Fiona Dowler, CFP® from Financial Planning Matters examines the pension landscape ahead of Budget 2026, explaining how auto-enrolment will reshape retirement savings, what the Standard Fund Threshold increases mean for your planning, and why the October 31st AVC deadline matters right now.

Fiona is a Certified Financial Planner™ professional with over six years of experience helping individuals, families, and business owners navigate retirement planning, investment strategies, and wealth management. She specialises in creating personalised financial plans that adapt as life changes, with a focus on building long-term, trust-based client relationships.

Introduction

As Budget 2026 approaches on October 7th, pension planning sits front and centre for good reason. Auto-enrolment launches in January, the Standard Fund Threshold continues its upward march, and PRSI rates are climbing to fund an ageing population. Whether you're starting your first job or approaching retirement, these changes will shape your financial security for decades.

The State's message is clear: pension saving is no longer optional. Understanding what's coming  - and acting before the changes take effect  - puts you in the strongest position to benefit.

Auto-Enrolment: The Game-Changer Arriving in January

Ireland's new auto-enrolment system, branded "My Future Fund," represents the biggest shift in workplace pensions in decades. From January 1st, 2026, eligible employees will be automatically enrolled into pension schemes whether they take action or not.

Who's affected?

If you're aged between 23 and 60, earn more than €20,000 annually, and don't currently have a workplace pension, you'll be enrolled automatically. This applies to employees only  - the self-employed are excluded from this initial rollout, though that may change in future years.

How contributions work

The structure starts modestly and increases every three years. Initially:

• Employee contribution: 1.5% of gross salary
• Employer contribution: 1.5% of gross salary
• State contribution: 0.75% of gross salary
• Total: 3.75% going into your pension

After ten years, these rates will reach their maximum: 6% from you, 6% from your employer, and 2% from the State  - a total of 14% of salary being saved for retirement.

Opting out and re-enrolment

You can opt out if you choose, but here's the mechanism built into the system: if you do, you'll be automatically re-enrolled after two years if you're still eligible. The government is making pension saving the default, not the exception.

For employers, this represents a significant compliance obligation. Payroll systems need updating, employment contracts require amendment, and administrative processes must be in place by January 1st. The clock is ticking.

The Standard Fund Threshold: More Room to Save

For those already building substantial pension pots, the Standard Fund Threshold (SFT) increases offer welcome breathing room.

The SFT  - effectively a cap on the total value of tax-relieved pension benefits you can accumulate in your lifetime  - is rising gradually from €2 million to €2.8 million between 2026 and 2029, increasing by €200,000 each year. In 2026, the threshold sits at €2.2 million.

Why it matters

If you're a high earner in your peak earning years or have been diligently contributing for decades, you may have been approaching the previous cap. These increases mean you can continue maximising tax-relieved pension contributions without hitting the ceiling as quickly.

However, Budget 2025 also capped the tax-free lump sum at retirement at €500,000, regardless of total pension fund value. Previously, this moved in line with the SFT. The change means careful structuring is needed to minimise tax on retirement withdrawals  - particularly if your fund value exceeds €2 million.

PRSI Increases: The Cost of Demographics

With an ageing population and rising State pension costs, PRSI rates are climbing  - and further increases are already legislated for.

Recent budgets have increased Class A PRSI to 4.2% for employees and 11.25% for employers. Legislation already provides for additional increases: 0.15% in both 2026 and 2027, and 0.2% in 2028.

While these increases might seem modest individually, they compound over time. For an employee earning €50,000, a 0.15% increase means an additional €75 per year. For employers managing multiple staff, the cumulative impact is more significant.

The reality is straightforward: funding future State pensions requires more revenue today. Auto-enrolment is designed to ease the burden on the State pension system in the long term, but in the short to medium term, contribution rates are rising.

Don't Miss the October 31st AVC Deadline

Before looking ahead to Budget 2026, here's an urgent reminder for this month: if you're considering Additional Voluntary Contributions (AVCs) to boost your pension savings and claim tax relief for 2024, you need to act before October 31st, 2025. (Relief for 2025 contributions can be claimed up until October 31st, 2026, and so on.)

With the deadline weeks away, now is the time to:

• Review whether you've maximised your pension contributions for 2024
• Calculate how much additional relief you're entitled to (based on your age and earnings)
• Make that AVC payment before October 31st, 2025 to secure the tax benefit

This is particularly relevant if you've had a strong income year, received a bonus, or haven't yet maximised your pension tax relief allowances. The window closes at the end of this month  - don't leave tax relief on the table.

What This Means for You: Three Real-World Scenarios

Scenario 1: Emma, 28, Marketing Executive earning €45,000

Emma doesn't currently have a pension through work. From January 2026, she'll be automatically enrolled in My Future Fund. Her initial contributions will be:

• Emma's contribution: €675 per year (1.5%)
• Employer contribution: €675 per year (1.5%)
• State contribution: €337.50 per year (0.75%)
• Total pension contribution: €1,687.50 per year

Emma's take-home pay will reduce by roughly €56 per month (her €675 contribution minus the tax relief she receives). In return, she'll build a pension pot that, assuming modest growth over 37 years until retirement at 65, could be worth over €200,000.

However, Emma could likely do better. If her employer offers an existing pension scheme with more generous matching or better fund options, or if she sets up a personal pension with lower charges and more investment choice, she'd have greater control over her retirement savings and potentially better long-term outcomes.

Scenario 2: Michael, 52, Self-Employed Consultant earning €80,000

Michael isn't included in auto-enrolment because he's self-employed. However, he's been contributing to a personal pension for years and is concerned about approaching the Standard Fund Threshold.

The increase to €2.2 million in 2026 gives Michael more headroom to continue his contributions without breaching the cap. He should review his current fund value and projected growth with a financial advisor to ensure he's maximising contributions while staying below the threshold.

With the new €500,000 cap on tax-free lump sums, Michael also needs to plan how he'll structure his retirement income to minimise tax  - particularly if his fund value approaches or exceeds €2 million.

Scenario 3: Sarah, 35, Small Business Owner with 8 Employees

Sarah faces a significant new cost from January. With 6 of her 8 employees eligible for auto-enrolment (two are already in company pension schemes), she needs to budget for employer contributions averaging €2,500–€4,000 per year per employee initially, rising substantially over time.

She also needs to update payroll systems, contracts, and engage a pension provider to administer the scheme. The administrative burden is real, and the compliance deadline is imminent.

What You Should Do Now

If you're an employee without a pension:

Don't wait passively for auto-enrolment. While it's good that the system will catch you eventually, auto-enrolment is designed as a baseline safety net  - not necessarily the optimal solution for your circumstances. Consider starting a pension now through your employer's existing scheme (if available) or setting up a personal pension that gives you greater control over fund selection, charges, and investment strategy. Even small contributions in your 20s and 30s make an enormous difference thanks to compound growth over time, and choosing your own arrangement means you can tailor it to your specific goals and risk tolerance.

If you're already saving into a pension:

Review your current contributions and fund performance. With the SFT increasing and auto-enrolment bringing pension planning into mainstream conversation, now is the time to ensure you're on track for the retirement you want. Are you maximising your tax relief? Is your fund performing well? When did you last review your investment strategy?

And don't forget: if you can make AVCs before October 31st, you'll secure additional tax relief for 2025.

If you're self-employed:

You're not included in auto-enrolment, which means the responsibility for retirement savings rests entirely on your shoulders. Don't defer this. Self-employed individuals often have more flexibility around pension contributions and can benefit from significant tax relief, but you need to be proactive about setting something up and maximising your allowances.

If you're an employer:

Act now. January will arrive quickly, and you need systems, providers, and processes in place before then. Speak with your accountant, payroll provider, and pension administrator to ensure compliance. The penalties for non-compliance haven't been widely publicised yet, but the obligation is clear.

The Bigger Picture

Budget 2026 represents a watershed moment for retirement planning in Ireland. Auto-enrolment will fundamentally change the pension landscape, bringing hundreds of thousands of workers into pension saving for the first time. The changes to the Standard Fund Threshold signal that government recognises the need for higher earners to continue building adequate retirement funds. The PRSI increases reflect the demographic reality of an ageing population and the cost of funding State pensions.

Put simply: planning for retirement is no longer optional, and the State is making sure of it.

The pension decisions you make today  - or choose not to make  - will shape your financial security for decades to come. Whether Budget 2026 brings further measures to support pension savers or additional costs to fund the system, one thing is certain: understanding your options and taking action now puts you in the strongest possible position for the future.