MyFutureFund: The biggest structural shift in pension coverage in a generation

The MyFutureFund State auto-enrolment pension scheme has got off to a strong start, with more than 800,000 employees now enrolled. The challenge will be to sustain that momentum as contribution rates rise in the years ahead. There are also broader questions about who should be covered: should the scheme be extended to the self-employed and to people who take time out of paid employment to care for children or other family members? And, if so, how could such an expansion work in practice?

Over 800,000 workers who had no pension provision now have one, thanks to the MuFutureFund, says Neville Maxwell, head of business development at Corporate Pensions – New Ireland. “That is the single biggest structural shift in Irish pension coverage in a generation, achieved simply by changing the default from “opt in” to “opt out”.

“That shift in engagement is arguably as valuable long-term as the coverage figure itself. This increase in engagement has also been accompanied by a greater focus on pension adequacy by our clients.”

The National Automatic Enrolment Retirement Savings Authority (NAERSA) figures for the first opt-out window, which closed at the end of August, showed just over 29,000 people leaving -under 4 per cent of those enrolled, and by NAERSA’s own account, lower than expected, says Maxwell. “That’s a strong endorsement of the scheme’s design. Where opt-outs are happening, the pattern is unsurprising and consistent with international experience: it skews toward lower earners closer to the €20,000 threshold who feel the deduction most acutely, alongside some who already have private arrangements in place.

“What’s also notable is the reverse flow - around 10,500 people who didn’t meet the automatic criteria chose to opt in voluntarily, which tells you the appetite for saving is there once the mechanism is made easy.”

The initial 3.5 per cent total contribution levels for the first three years are low and may not make a meaningful impact on retirement income, says Nick Charalambous, managing director of Alpha Wealth. While it will increase to a total of 14 per cent split between the employer, the employee and the State, this will take another eight years.

“If you are in your 20s or 30s, this typically would be fine. However, in your 40s or 50s, it is too low,” he says.

The benefit of MyFutureFund is that for every €3 put in, your employer adds €3 and the State adds €1, he says. “By opting out or suspending, you lose the €4 for every €3 contribution. Additionally, you lose the tax-free growth of your pension. Both are significant benefits to your long savings.”

Moving from 1.5 per cent to 6 per cent employee contribution by 2035 means a rate rise roughly every couple of years, each one triggering its own six-month qualifying period and fresh opt-out window, says Maxwell. “Every one of those moments is a decision point where inertia can work against retention as easily as it worked for enrolment at the outset. Employers and advisers need to be proactively communicating the value of the employer and State match at each step, not leaving people to react to a bigger number on their payslip in isolation.”

The scheme’s designers clearly anticipated this by building an opt-out window into every rate increase, explains Maxwell. “Lower-paid workers have the least room to absorb a bigger deduction and are also the cohort auto-enrolment was principally designed to reach, so this is a real tension, not a hypothetical one.

“Where I’d push back a little is on the framing of contributions as pure cost. Getting that message across clearly - through payslip design, employer communication and adviser engagement - will matter more at each rate rise than it did at launch.”

Taking time out for caring or other reasons can have a significant impact on a pension, says Charalambous. “On average, per five years out of the pension environment, it typically costs twice as much to reach the same point.

“However, many private pension schemes allow you to continue contributing without an employer during a career break. Even modest contributions during the gap preserve some compounding time, which matters more than the absolute amount.”