My Future Fund: What to Know About Auto-Enrolment Pension in Ireland

Pension & retirement

23 October 2024

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The Auto Enrolment Pension Scheme which will be called My Future Fund, is set to launch in September 2025 marking a milestone in the Irish pension landscape. An estimated 800,000 employees will be automatically registered in retirement savings plans under the upcoming system, covering individuals who haven’t yet saved for their future pensions.  The government has signed a €150 million contract with Tata Consultancy Services (TCS) to administer the scheme, seeking to help bridge the pension gap and prepare workers financially for their retirement.

Let’s dive into the details of this upcoming system, how it works, and what it means for individuals and businesses alike.

 

What is Auto-Enrolment Pension?

An auto-enrolment pension is a system where employees are automatically enrolled into a pension scheme by their employers, rather than needing to opt-in. Employers and employees both make contributions to the retirement savings plan under this program. To promote long-term savings, the state usually makes additional contributions or provides incentives. This strategy guarantees that employees have a safety net for their retirement years, particularly those who might not otherwise want to enrol in a pension plan.

Ireland has been one of the last countries in the OECD (Organisation for Economic Co-operation and Development) without a nationwide auto-enrolment pension system. The introduction of My Future Fund seeks to fill this gap by providing such workers who are not members of any pension plan an option to save for retirement.

 

How Will “My Future Fund” Work?

The government approval has been secured for the establishment of the National Automatic Enrolment Retirement Savings Authority (NAERSA) on the 31 March 2025, who will oversee the administration of the My Future Fund and will be in charge of investment management and contribution collecting.

Employees who are not currently participating in an existing pension plan will be automatically enrolled into My Future Fund starting September 30, 2025. The scheme will offer employees three investment strategies—high, medium, and low risk—  with the aim of giving the employees a chance to invest in accordance with their expected returns and risk levels. For employees who do not make a specific choice, a default lifecycle investment option will be applied, which shifts the risk profile of the investment from high to low as the participant nears retirement age.

 

Understanding the State Pension Age

For people who will be automatically enrolled in My Future Fund, the state pension age is particularly important when it comes to retirement planning. In Ireland, the state pension age is currently set at 66. For younger workers, this can seem far off, but it emphasises how crucial it is to accumulate enough retirement funds above and beyond the state pension.

With My Future Fund, workers will have an additional source of retirement income, which will reduce reliance on the state pension alone. This helps to protect retirees in the sense that they will have increased readiness to meet their financial obligations in the future and accomplish a more steady income through their retirement  years.

 

The Pension Gap in Ireland: A Long-standing Issue

The introduction of auto-enrolment pensions in Ireland is partly designed to address the significant pension coverage gap. Currently, many workers in Ireland—particularly those in low-income and part-time positions—do not have enough pension coverage. Occupational pension schemes are less common in some sectors, therefore exposing workers to risk of uncertainty once they retire.

The new auto enrolment pension scheme seeks to help people who do not currently save for a pension. It offers them a way of building a pension pot that is systematic and backed by the government. Nonetheless, understanding the implications of this system and making arrangements will be very important for both employees and for employers.

 

Employee Contributions and Investment Choices in the My Future Fund Scheme

Once the system begins, employees will contribute 1.5% of their gross pay, gradually increasing to 6% over a ten-year period. Employers will match these contributions, and the State will also provide a top-up, starting at 0.5% and rising to 2% by year ten. Unlike other pension schemes, there will be no tax relief on employee contributions. Instead, the net cost for employees is directly 1.5%, rising to 6%, as the State’s top-up replaces the usual tax relief.

Here’s a breakdown of the contribution rates:

  • Years 1 to 3: Employees and employers each contribute 1.5%, with a 0.5% top-up from the State.
  • Years 4 to 6: Contributions increase to 3%, with the State contributing 1%.
  • Years 7 to 9: Contributions rise to 4.5%, with the State adding 1.5%.
  • Year 10+: Employees and employers contribute 6%, with a 2% State top-up.

 

For example, someone earning €20,000 per year will contribute €300 annually in the first three years, matched by their employer, with an additional €100 from the State. By year ten, this will rise to €1,200 each from the employee and employer, with €400 from the State, totalling €2,800 annually.

Participants will be able to choose between different risk-based investment strategies or default to the lifecycle strategy that automatically adjusts based on the participant’s proximity to retirement. Employees will also have online tools as part of this system to track their savings and modify their investment or contribution plans as needed.

For individuals who are automatically enrolled but wish to opt out, they will have the option to do so in the seventh and eighth months following their enrolment. Employees will be automatically re-enrolled every two years if they match the requirements, but they can cease contributions if necessary after that.

 

The Importance of Understanding the Auto Enrolment Pension Scheme for Business Owners

On the other hand, it’s essential for business owners to fully understand how the system works and the obligations it imposes. The My Future Fund will require employers to contribute to their employees’ pension pots, in addition to the contributions made by the workers themselves and the State. For many businesses, especially small and medium sized enterprises (SMEs) these changes will come as a huge change to their financial and payroll structure.

In order to comply with the new legal requirements, business owners must also budget appropriately for auto enrolment contributions. While these payments will be phased in gradually, understanding their long-term impact on company finances is crucial. Employers will also have to consider how their payroll systems will accommodate such contributions and process accordingly. In addition, businesses without dedicated pension schemes may need to familiarize themselves with pension regulations for the first time, providing employees with the necessary support and information.

Read more about The Implications of Auto Enrolment for Business Owners in the following link.

 

Concerns About the Timeline for My Future Fund

My Future Fund will start from 30th September 2025, according to the government’s timeline Employers and payroll developers must integrate the required systems and make necessary adjustments to accommodate the new system. As many stakeholders have only a year to prepare, there is concern over whether the necessary structure will be in place on time.

A government communications campaign aimed at informing both employers and employees about the changes is underway to address these concerns. Additionally, payroll providers and businesses are being encouraged to prepare early, ensuring that their systems are ready to manage auto-enrolment contributions smoothly. However, with such a significant shift in the pension system, there are still worries about whether the infrastructure, including the administrative and technical frameworks, will be fully operational by the September 2025 deadline. Employers will need to stay updated and proactive in preparing for the transition to avoid potential disruptions or compliance issues when the system goes live.

 

Seeking Professional Financial Advice

As the introduction of the My Future Fund scheme brings significant changes to retirement planning, both employees and employers must prepare for this transition. For employees, understanding how these new contributions affect their retirement savings is vital for ensuring long-term financial security. Employers, especially business owners, face new responsibilities in managing pension contributions, updating payroll systems, and ensuring compliance with the new regulations.

Understanding the intricacies of this new pension system can be overwhelming for both parties, which is why seeking professional financial advice is essential. At Fairstone, we can provide personalised guidance to help individuals and businesses make informed choices. Whether you’re an employer ensuring your business is compliant, or an employee optimising your retirement savings, Fairstone’s team of pension specialists is equipped to support you every step of the way. By consulting experienced advisors, you can gain a clearer understanding of the implications of the My Future Fund Scheme and explore how to incorporate it into your financial strategy. This ensures your decisions are fully aligned with your long-term goals, securing a more stable and prosperous future for both businesses and individuals.

 

Let’s Talk

 

Source:

Gov.ie

 

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