The clock is ticking loudly for auto-enrolment, the State-run mandatory workplace pension scheme called My Future Fund that is coming into force in January.
If you work in a company that offers access to a pension, you have just a month to sort out whether to join that scheme or to find yourself enrolled in the new arrangement.
Why just a month? Because anyone not making contributions into a workplace pension by the middle of November will be seen as one of the 750,000 workers in need of private pension coverage.
December will be too late to allow the enrolment in the new scheme to take place in January.
So what do you need to know?
From January, anyone who is aged between 23 and 60 and earning more than €20,000 will be automatically enrolled into a new State-run retirement savings programme called My Future Fund unless they are already signed up to another workplace or private pension scheme.
That €20,000 covers total earnings from however many jobs you may have. The other thing to note is that, initially anyway, the self-employed will not be affected.
Is that a good idea for me?
Saving for retirement is always a good idea and the earlier you start the better. A large number of people in private sector employment right now will have no income in retirement except the State pension. That currently pays just over €15,000 a year which could mean sharply diminished income when you retire.
Tens of thousands of workers, especially in areas like hospitality, retail and agriculture are among those with no cover beyond the state pension.
And with the number of older Irish people growing all the time, pressure on the State pension will increase. Making plans to ensure you have enough money in retirement makes sense.
How does it work?
If you are not enrolled in any other pension by roughly the middle of November, you will be signed up and they will start deducting money from your pay packet in January.
Initially, the amount they take will be the equivalent of 1.5 per cent of your gross (before tax) salary. But it will be taken from your after tax pay packet so it will feel like more than 1.5 per cent.
Your employer will have to pay the same amount and the State will contribute €1 for every €3 you put in, so 0.5 per cent of your gross salary.
Will that be enough to give me an income in retirement?
Not really but the idea is that contributions start at a fairly low level so that you get used to the idea. After three years, your contribution (and your employers’) jumps to 3 per cent. That then goes to 4.5 per cent after a further three years and eventually, 10 years from now, to 6 per cent.
At that point, between your contributions, your employers’ and the State’s, 14 per cent of your gross salary will be going into your pension pot each year. So if you are earning at the national average – about €53,000 a year – €7,420 a year will be going into your pension at that time.
Things are tight financially right now. Can I opt out?
Yes, you can but not for six months. And if you fail to make a decision by eight months, you are locked in. So, effectively, you have two months to make a decision and act on it. If you do opt out, your contributions will be refunded to you.
Of course, it is not just your money; there is also the contributions made by employer and the State. They stay invested although clearly neither party adds to them if you are not contributing.
Two years after you opt out, you will be enrolled again with the same opt-out arrangements.
The opt out feature is available six months after every increase in contributions on the same terms. You can also suspend contributions in which case your money stays invested but you make no further contributions for at least a year.
You mention my own workplace scheme?
Yes, many of the expected 750,000 people who will be signed up to this scheme work in places that do not offer a pension – even though, by law, they have been obliged to make some pension funds option available for some years now. However, an estimated 100,000 people are working in companies where saving into a pension scheme is available.
Thus far, they have chosen not to do so, which is foolish, but you never know the financial pressures individuals are under.
As Joyce Brennan, chief executive of the Irish Association of Pension Funds (IAPF) – the industry’s voice – says: “If you’re already in your employer’s pension scheme, you won’t be affected. If your employer doesn’t offer a pension plan, you’ll be automatically enrolled in My Future Fund. If your employer offers a pension plan and you haven’t joined it yet, you have a decision to make.”
Those in that position have a choice: sign up to their employer’s scheme or the new My Future Fund. But they can no longer choose simply not to save for retirement. If you do not choose, the State will do it for you.
How do the two compare?
Well, they don’t really, which is unhelpful. Pensions are complicated enough to explain, which puts many people off. Having different pensions systems operating only exacerbates that issue.
“My Future Fund and your employer’s pension plan operate in fundamentally different ways,” Brennan says. “That’s why it’s worth taking the time to compare them.
“The right choice will depend on your income level, your tax rate, and the specific contribution rate and structure offered by your employer. Choosing the right pension plan can significantly impact your future savings and your take-home pay today.”
“It’s important to understand the differences so you can decide what’s best for you,” she says.
So what are the differences?
Let’s look at a couple of areas – the contributions you make and the State’s incentive.
Contributions: Under auto-enrolment, you pay 1.5 per cent of your gross salary, rising over time to 6 per cent. That can include overtime and bonuses, items which are not normally covered in an employer-sponsored scheme, so your 1.5 per cent is bigger than it would be if the same percentage were taken under an occupational scheme.
Employer run in-house schemes can vary on contributions but, the IAPF says, they will typically deduct between 5 and 7 per cent from your gross salary, with the employer matching those deductions.
You also have the option to pay more if you can through something called Additional Voluntary Contributions which are exactly what they sound like, additional payments into a pension fund. Some employers will also match these but not all.
As you can see, once My Future Fund gets up to its full 6 per cent contribution, there’s not a lot of difference but that will take 10 years – a quarter of your working life. And if you are already well established in the working world, you have to decide if you have you might not be better front-loading the pension.
There’s also a cap on employer contributions. If you earn more than €80,000, they will only match up to 6 per cent of €80,000. As a result higher paid workers are certainly better going with an employer scheme if one is available.
One other thing. The My Future Fund will start taking contributions right away whereas occupational schemes often have a six-month lag to allow for probationary periods and the like. Unless employers change this, their new staff will be automatically enrolled in the new State scheme.
Then there is the State incentive.
State incentive: An occupational scheme offers tax relief at your higher income tax rate. So if you are paying tax at the higher 40 per cent rate, every €1 in your fund only costs you 60 cent. Basically the State is paying 40 per cent of every euro in your pension fund.
If you pay tax only at the standard rate, every euro in your pension fund is costing you 80 cent, with the State contributing 20 per cent of the cost in line with your income tax rate.
Under the My Future Fund there is no tax relief as such. Instead, the State pays €1 for every €3 you invest, so €1 in every €4 in the fund is theirs. That equates to tax relief of 25 per cent – at least up to that €80,000 ceiling.
So if you are on standard rate tax, auto-enrolment might look more appealing all other factors being equal.
There are other factors that need to be taken into consideration.
Flexibility: The State scheme has a fixed retirement age for drawing down your benefits and a cap on how much you can put into the fund, IAPF’s Brennan notes. Employer schemes tend to be more flexible on retirement age and contribution levels which can be important, not least to working women who have chosen to take time out to care for family.
There is also likely to be a wider range of investment options available under an occupational scheme while the My Future Fund offers a default Lifecycle fund which invests in riskier assets when you are young and gradually lowers the risk profile as you head for retirement.
It will also offer three other funds: one low risk, one medium risk and one high risk.
It is not worth reading too much into this however as the vast majority of people tend to start with and stick with the lifestyle fund, an option all employer-run schemes will also offer.
Can you give me a couple of examples?
Sure, the IAPF have pulled together a few.
They look first at Donal, whose salary is €40,000 who has never got around to joining his company’s plan which requires a 5 per cent contribution from him which they will match.
an. He looks at the information available and he must pay 5 per cent of salary and his employer will pay 5 per cent of salary.
Under the employer plan, Donal will make contributions of €2,000. However, as he pays tax at the standard 20 per cent level, this will cost him just €1,600. The employer also puts in €2,000. So at the end of the year, Donal has seen €4,000 of contributions go into his fund – 2.5 times the €1,600 it has cost Donal.
Under My Future Fund, at the contribution levels in place next year, he will pay €600, as will his employer while the State will chip in €200. At the end of 2026, there have been contributions of €1,400 going into the fund, or 2.33 times his €600.
If we were in year 10, Donal would be paying in €2,400, matched by his company and with the State adding €800 – a total of €5,600, which is still 2.33 times his personal contribution.
Turning now to Áine, who is a higher earner with a salary of €60,000
Aine’s salary is €60,000 and she has been putting off joining her employer’s pension scheme because she has been saving for a home. Her employer will match her contributions up to 8 per cent of salary.
Taking advantage of the “free money” her employer is offer, Áine makes contributions of €4,800 – the full 8 per cent that can be matched. Because she pays tax at 40 per cent, the actual cost to her after tax relief is €2,800.
Her employer’s matching €4,800 brings the total contributions to the fund in 2026 to €9,600 – or 3.33 times her personal contribution.
Under My Future Fund, she would be paying €900 next year, with the employer matching that sim and the State paying €300 for a total of €2,100, which is less than half what the employer is contributing under the in-house scheme and again 2.33 times her contribution.
Yes, in year 10, that will have risen but it will still be lower than under the in-house scheme at €3,600, and the total contributions in Year 10 will be €8,400
What about charges?
Good point. The charges under My Future Fund will be capped at a very competitive rate. They will almost certainly be lower than anything you are going to see with an employer-sponsored occupational scheme, or even a PRSA.
There are a lot of variables here so charges in themselves are one thing you really need to pay attention to when choosing which option to go with.
Anything else?
Well yes, another issue is how easily you can move your pension when you change jobs. In this regard, My Future Fund will be the easier option, following you seamlessly from job to job.
What happens with an employer-run scheme depends on the wording of the rules guiding it but generally you can leave it where it is (meaning you might have multiple pension funds on the go as your career progresses), transfer to a new employer (which is not massively complicated but not as seamless as My Future Fund, or you can put it into something call a Pension Buy-out Bond, where you will have more control over it than in either other option but almost certainly at the cost of higher charges.
When can I get my money?
The My Future Fund will pay out when you reach the State retirement age whereas there will likely be more flexibility with the employer-run scheme where it is available.
Under either scheme, you will get up to 25 per cent of the fund by way of a tax free lump sum with the rest going into an annuity, which is an insurance policy guaranteeing to pay you a certain amount for life, or an Approved Retirement Fund where your month stays invested as you draw down some of it each year.
It is also possible to put some in each of those two alternatives.
There is provision to apply for early payment under My Future Fund but only in the event of severe ill health. If you die, the fund will go to your estate.
Can I choose whether to go the auto-enrolment route or sign up to my employer’s scheme?
If you have not yet signed up to any employer scheme or private Personal Retirement Savings Account (another personal private pension arrangement), yes you can. However, if you already have private pension coverage, you cannot join My Future Fund.
Can my employer force me to sign up to their in-house scheme?
No, they cannot. A lot of employers who do have schemes are keen not to run two parallel pension arrangements and have been encouraging people to join the in-house scheme.
Often, that will be the sensible call but, ultimately, it is your choice. You cannot be signed up to an employer scheme against your will unless it is a condition of your contract of employment, in which case you would already be in it.
What about people who do not have a private pension but are either younger than 23, older than 60 or whose income is less than €20,000?
While people outside the parameters of auto-enrolment will not be signed up to the scheme automatically, they can choose to opt in, in which case their employer will be obliged to manage the initial administration and also contribute to their fund in the same way as anyone else.
As to which scheme you choose, if you income is that low, you will probably be better off financially in My Future Fund, despite its lack of flexibility.
So which should I choose?
That really is very much up to you. It will very much depend on how much you earn, how much your employer will match in terms of contributions, what tax rate you pay, what flexibility you might want.
But always remember, even if you sign up now for My Future Fund, you will be able to transfer to an employer or private scheme later if it suits you better at that time, You will not be able to go the other way.
I do also expect that My Future Fund may introduce some greater flexibility once it is up and running but that’s only a guess.
You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here