Ireland is set to introduce a landmark auto-enrolment pension scheme, known as “My Future Fund,”
This scheme is aimed at closing the pension coverage gap for workers without occupational pensions. This is a substantial guide as to how the scheme will work, who it affects, and what it means for employers and employees.
“This represents one of the biggest reforms of the pension system in the history of the State, and is an important milestone in supporting people in their retirement years.”
Minister Heather Humphreys, April 2024
Source: www.gov.ie
Voted into law on April 17th 2024, Auto-Enrolment is a workplace pension scheme established by the Irish Government. Its main objectives are to:
1)Increase retirement savings for the workforce.
2)Reduce dependency on the State pension.
3)Ensure workers have a pension plan, regardless of company size or industry.
Ireland has a significant pension gap which needs to be addressed urgently. Approximately one-third of employees aged between 20 and 69 do not have a private pension, and will depend on the State pension in retirement (source Central Statistics Office). The current maximum level of State pension benefit for those aged 66 to 79 is €289.30 per week (€15,043 per annum). From age 80 the payment increases by €10 per week to €299.30.
There are two main reasons:
Not many people have work or private pensions and will depend solely on the State Pension when they retire. This means that they may experience a drop in income when they retire which could lead to a fall in their standard of living.
Ireland has an aging population, in the future there will be fewer people of working age to support the retired population. To make sure people have enough money when they retire, it is important that people start saving for their future now.
Auto-enrolment is planned to commence on January 1st 2026.
Auto-enrolment will be run and managed by a new independent body set up by the Department of Social Protection, called the National Automatic Enarolment Retirement Savings Authority (NAERSA) and administered by Tata Consultancy Services (TCS). Irish Life Investment Managers, Amundi and Blackrock will invest funds on behalf of scheme members.
If you are an employee and are eligible when the scheme launches, the National Automatic Enrolment Retirement Savings Authority will automatically enrol you*. You do not need to take any action.
The auto-enrolment scheme will be supervised by the Pensions Authority. It will have statutory independence and will be governed by a Board of Directors.
The Financial Services and Pensions Ombudsman services will also be available to participants.
The administration of auto-enrolment will involve several entities and steps:
Central Processing Authority (CPA)
The Auto-Enrolment scheme will be managed by a government-established Central Processing Authority (CPA). The CPA will oversee the enrolment process, contribution management, and employer compliance.
Employee Registration
Once an employee is deemed eligible, the payroll system must automatically enrol the employee in the pension plan. HR departments should ensure that their systems are linked to the CPA’s platform for seamless communication and real-time updates.
Contribution Collection
Payroll systems must be updated to ensure automatic deductions of contributions from employees’ salaries and the matching contributions from employers. These deductions will then be remitted to the CPA, which will forward them to the designated pension provider.
Auto-enrolment is designed to encourage retirement savings, but it’s not right for everyone. It automatically enrols eligible employees in a pension scheme, offering a pathway to retirement savings, but employees can opt out. The scheme aims to reach the widest group of people, specifically those aged 23-60 earning over €20,000, who are not already part of a pension plan.
There are some employees for whom Auto-Enrolment will not be the most suitable, from the point of view of tax-relief, flexibility, additional contributions among other reasons. Talk to us at Hastings Insurance where we can assess your individual or business circumstances.
For those who pay tax at 40%, the auto-enrolment scheme might be less beneficial than a traditional pension. Higher-rate taxpayers might find that traditional pensions are more tax-advantageous, especially when considering the points below:
Tax Relief
Auto-Enrolment provides a State contribution equivalent to 25% tax relief, but traditional pensions can offer tax relief up to 40%. A traditional pension is much more advantageous in this scenario.
Flexibility
Auto-Enrolment contributions and options are more rigid, and the employee cannot make additional contributions beyond the set rate. Traditional pensions offer more flexibility in terms of additional contributions, fund choice, and retirement age to name but a few.
Preparation must start now to avoid the new central retirement savings system if it is not the best fit for you, and to retain control over key areas ensuring all staff have the same employee benefits experience. 
Age
Employees aged between 23 and 60 years are eligible for Auto-Enrolment. Employees under 23 or over 60 years of age can voluntarily opt in.
Income
Employees earning more than €20,000 per annum will be automatically enrolled. This threshold ensures that lower-income employees are also covered by the system. Seasonal workers or employees with variable hours and income may also fall within the scope of Auto-Enrolment. Employees earning less than €20,000 per annum can voluntarily opt in.
Employment Status
All eligible employees, whether full-time or part-time, who do not already have access to a workplace pension scheme will be automatically enrolled.
Employees who are auto-enrolled have the right to opt-out but only after a minimum contribution period of six months.
As per government guidance, someone considered an employee for the purposes of auto-enrolment is “an employee for the purposes of auto-enrolment is the same as an employee for tax and PRSI purposes. It is a worker who works for and is paid by an employer, and is not self-employed.”
The contributions are calculated on your gross salary – your earnings before tax. Your employer will match your contributions, and the Government will contribute an additional amount. You and your employer will pay 1.5% of your annual salary in the first year while the Government will add an additional 0.50%. The contributions will gradually increase by year 10 to 6% from both employee and employer, and 2% from the State.
This tables below show the rates and amounts that an employee, their employer and the Government will pay if the employee is earning €20,000 per annum.
| Year | Employee Contribution | Employer Contribution | Government Contribution |
|---|---|---|---|
| 1 – 3 years | 1.50% | 1.50% | 0.50% |
| 4 – 6 years | 3.00% | 3.00% | 1.00% |
| 7 – 9 years | 4.50% | 4.50% | 1.50% |
| 10+ years | 6.00% | 6.00% | 2.00% |
| Year | Employee pays | Employer pays | Government pays | Total annual payments |
|---|---|---|---|---|
| 1 – 3 years | €300.00 | €300.00 | €100.00 | €700.00 |
| 4 – 6 years | €600.00 | €600.00 | €200.00 | €1,400.00 |
| 7 – 9 years | €900.00 | €900.00 | €300.00 | €2,100.00 |
| 10+ years | €1,200.00 | €1,200.00 | €400.00 | €2,800.00 |
Source: Citizens Information
Employee Contributions
Contributions made by employees will not qualify for traditional income tax relief. Instead, the State will provide a top-up equivalent to 33% of the employee’s contribution (i.e., €1 for every €3 contributed), which is equivalent to 25% tax relief. This top-up is not considered taxable income for the employee.
Employer Contributions
Employers’ contributions to the scheme are deductible for corporation tax purposes and are not treated as a taxable benefit-in-kind for employees.
Investment Growth
Earnings and gains within the fund will accumulate tax-free, aligning with the treatment of other pension schemes.
Retirement Benefits
Upon reaching the State Pension age (currently 66), participants can withdraw up to 25% of their fund as a tax-free lump sum. The remaining balance will be subject to income tax under the PAYE system upon withdrawal.
Standard Fund Threshold (SFT)
The value of the My Future Fund will be aggregated with other pension arrangements to assess against the SFT. Any amount exceeding the SFT at retirement will be subject to tax.
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