Key Contacts – Patrick Walshe – Partner
Ireland is set to launch its new auto-enrolment retirement savings scheme (the “Scheme”), known as “My Future Fund”. This Scheme aims to ensure that employees have additional financial security when they retire, supplementing the State Pension.
Administered by the National Automatic Enrolment Retirement Savings Authority, the Scheme is set to launch on 31 March 2025, with contributions starting from 30 September 2025.
What is auto-enrolment?
Auto-enrolment is a State-established retirement and investment savings scheme where employees, employers and the State contribute to a retirement fund.
The Scheme is designed to ensure workers have adequate savings to support their retirement.
Eligible employees will be automatically enrolled but can opt-out or suspend their participation under certain conditions.
Who is eligible for the Scheme?
To be eligible for auto-enrolment, employees must:
This includes employees who are on probation, casual workers, and employees who are employed on seasonal or part-time contracts.
Employees aged between 18 and 23 can opt-in on a voluntary basis.
However, certain groups are excluded from the Scheme, including:
What are the Contribution Rates?
Under auto-enrolment, contributions are based on a set percentage of an employee’s gross salary up to €80,000, namely:
- Employee Contributions: Employee contributions will start at 1.5% of salary in the first year, increasing incrementally until year 10, at which stage contributions will have reached 6%.
- Employer Contributions: Employers will match employee contributions.
- State Contributions: The state will provide an additional top-up
By way of illustration:
It is important to clarify that the phasing-in period refers to the years following the Scheme’s implementation, not the years during which an employee becomes eligible.
In other words, by 2035, all eligible participants will contribute at a uniform rate of 6%, regardless of how long they have been participating in the Scheme. For example, an employee who becomes eligible to join the Scheme in 2029 will start contributing at a rate of 3%, as that aligns with the phasing-in schedule at that time.
Can employees opt out of the Scheme?
Enrolled employees will have the option to opt-out and suspend their membership to the Scheme in certain circumstances.
For the first 6 months of contributions, all eligible persons will have to opt in. However, once the 6 months lapses, employees will be able to opt out and receive a return of their contributions.
Additionally, if an employee chooses to leave the Scheme in month 7 or 8, after a change in the contribution rates, they will get a refund. This refund will be based on the difference between the employee’s own contributions at the old and new rates during the previous 6 months. This option is only available during the first 10 years of the Scheme, as contribution rates gradually increase.
It should be noted that the employer and State contributions made until the point of opting out will stay in the employee’s pot even if they opt-out. Once the contributions are paid into the pot, they are the property of the employee.
Employees should be aware that opting out is only valid for 2 years. This means that, 2 years from the day of opting out, employees will be automatically enrolled again with the option to opt out again as they wish.
Employees can also suspend their contributions at any time, however, they will not receive a refund for suspensions.
How does auto-enrolment work?
Auto-enrolment functions entirely separate to the State pension and contributions are calculated based off the individual employee’s PRSI. Any auto-enrolment payments will be assessable the same as any other pension scheme.
- Eligibility Identification: Eligible employees are identified through Revenue data. This means that there is no waiting period for employees. Once eligible, auto-enrolment occurs.
- Payroll Notification: Employers are informed of employee auto-enrolment status via payroll software.
- Automatic Contributions: Both employee and employer contributions are deducted and invested. Contributions are based on gross pay collected from both employer and employee.
- Portability: Monies accumulated will follow employees across jobs through their working life.
What does auto-enrolment mean for employers?
Employers will be obliged to sign up to the scheme if any of their employees do not contribute to another pension scheme. This will obviously result in increased costs for employers.
Once signed up, employers must match eligible employee’s pension contributions. Failure to do so will result in fines and potentially even prosecution.
Employers with existing pension schemes in place are not unaffected either. Given that membership to these schemes is usually voluntary, not all employees will be members of the plan and those who are not will be auto-enrolled into the Scheme.
However, employers will have minimal administrative tasks relating to auto-enrolment.
Contributions will be automatically calculated through the payroll software, and National Automatic Enrolment Retirement Savings Authority will identify eligible employees based on payroll data submitted to revenue.
Employers will have to ensure that they are acting in accordance with the Automatic Enrolment Retirement Savings System Act 2024. A resolution process will be implemented for non-compliance and complaints. Fines and penalties will be imposed in the case of non-compliance. Ie. If employers prevent employees joining or force them to opt-out will be fined.
Can contributions be accessed before retirement?
Funds are generally inaccessible before the statutory age of retirement (which is currently 66), except in cases of ill health and forced early retirement.
Upon turning 66, the funds will be released to the employee but until then, regardless of whether the employee has opted in or opted out, the accumulated funds will remain in the pot.
What happens if someone leaves Ireland permanently?
If someone emigrates after having already began contributing to the Scheme, the retirement savings remain in the fund and continue to grow. They will still not be accessible until retirement age.
Are contributions taxable?
Essentially, contributions will be treated as PRSA payments with the main exemption being, there is no tax relief. Instead, they system provides for a direct financial top-up.
This is the equivalent of 25% tax relief across the board, but it is a top-up as opposed to a direct tax relief.
Employer contributions will be entitled to tax relief for the employer, not for benefit in kind for the employee. The employee contributions will be top-up based. The State will not be subject to tax and investments will be tax free.
How are funds invested?
Funds will be invested with protections in place.
Employees will be able to select a high, medium or low-risk investment option.
It should also be noted that the risk will be reduced as an individual approaches retirement (taking a life-cycle investment approach).
Conclusion
“My Future Fund” represents a significant step forward in retirement planning, offering employees additional financial security upon retirement. By combining
Employees and employers alike should prepare for the Scheme’s rollout in 2025.
This article was written with the assistance of trainee, Alison Byrne.
