It’s finally happening. After numerous announcements going back decades and almost as many false dawns, the auto-enrolment (AE) pension scheme will become a reality in January. The MyFuture Fund scheme is aimed at extending supplementary coverage to the 800,000 or so workers in the Republic who are currently solely dependent on the State pension for their income in retirement.
The scheme is likely to have a significant impact, according to Fergus Moyles, head of private wealth strategy at Mercer Ireland. He points out that while all employers have to provide access to a pension scheme, they do not have to contribute towards one. This means that many employees do not benefit from employer contributions to a pension.
“Employees are often more likely to be incentivised to save for their pension if they are getting the benefit of both tax relief and employer contributions,” he says. “However, that is all about to change from January 1st 2026, as any employee not included in a pension scheme will be automatically swept into the Government’s AE pension scheme. All employers will have to pay a minimum contribution in a pension for their employees, and this amount will have to increase in the coming years. This will drastically increase the level of pension coverage in the future.”
As the name suggests, the scheme works by automatically enrolling employees in a centralised State-run pension scheme with periodic opportunities to opt out. The legislation provides for a pension scheme for eligible employees who currently do not have one, provided they earn more than €20,000 per year and fall between the ages of 23 and 60. All employees not already enrolled in an occupational pension scheme or equivalent will be automatically enrolled.
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The scheme will be co-funded by both employers and the State. Employee contributions will be matched by their employers, with an additional top-up from the State. If an employee pays €3 into their pension pot, their employer must match that contribution, putting in €3. At the same time, the State will provide a €1 top-up, resulting in a total contribution of €7 for every €3 contributed by the employee.
The state top-up contribution to the pension is designed to compensate for the lack of tax relief on employee contributions. Employer and employee contributions will start at 1.5 per cent of gross salary and gradually increase to the maximum contribution rate of six per cent from year 10 onwards.
The scheme is what is known as soft mandatory. Membership will be compulsory for the first six months, after which members can choose to opt out. Those who do opt out will be automatically re-enrolled after two years. That process will repeat every two years in the hope that employees will eventually choose to remain in membership.
The experience in other countries, including the UK, suggests that this will indeed be the case. However, there is mounting evidence in the UK that recent cost-of-living increases are having a negative impact on auto-enrolment participation.
One of the potential problems raised in relation to the new scheme is the additional burden it will place on employers who already have an occupational pension scheme in place. If all eligible employees are not already members of the occupational scheme the employer will also have to offer the MyFuture Fund scheme. The only way to avoid this will be to enlist all employees into the occupational scheme before January 1st, 2026, and to make membership mandatory for employees after that date. This is no bad thing as it will support the core objective of the MyFuture Fund scheme in expanding supplementary pension coverage.
The other potential issue is adequacy. With such low levels of contributions in the early years, there is a fear that MyFuture Fund members will end up with pensions that do not meet their expectations. And there appears to be no scope within the scheme to address this.
“Unfortunately, there is no option to pay additional voluntary contributions (AVCs) via payroll into the central auto-enrolment system as it currently stands,” says Moyles. “This is one of the main disadvantages of MyFuture Fund in comparison to a company pension scheme or personal retirement savings account as AVCs are vital to enable people accumulate sufficient pension assets to live a comfortable retirement.
“There may be an opportunity for individuals enrolled in the AE system to pay one-off lump-sum AVCs into a pension arrangement outside the AE system provided it is not done via payroll. However, this is not yet confirmed, and further clarity will be needed from the Department of Social Protection.”
Notwithstanding these potential disadvantages, the new scheme is likely to be a genuine game changer for the hundreds of thousands of people without supplementary pension coverage at present.
