Simplicity is at the heart of the new My Future Fund pension scheme. All employees aged between 23 and 60 who are earning more than €20,000 annually and not already members of an occupational scheme or equivalent will be automatically enrolled.
Employee contributions will be matched by their employers, with an additional top-up from the State. If an employee pays €3 into the scheme, their employer must match that. 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. Employer and employee contributions will start at 1.5 per cent of gross salary and gradually increase to the maximum contribution rate of 6 per cent each from year 10 onwards when total contributions will reach 14 per cent including the State share.
Participants will be able to draw down their pension when they reach the State retirement age, currently 66.
Most of the heavy administrative lifting will be carried out by the National Auto Enrolment Retirement Savings Authority (Naersa). It will handle much of the administration of the scheme by determining eligibility for auto-enrolment and enrolling eligible employees. It will also collect all employee, employer and State contributions, and invest the money on participants’ behalf.
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The authority will appoint four investment management providers, who will each offer four investment funds: a default investment strategy, along with low-, medium- and high-risk strategies for those who wish to play a more active role in how their pension pot is invested.
Naersa will allocate investment returns to participants’ savings pots. Participants’ will keep one savings pot as they move from job to job – this is known as the “pot-follows-member” approach.
Very importantly, Naersa will operate an online portal for employees. Employees can use this to opt out, suspend contributions and re-enrol, as well as to manage other aspects of their pension. There will also be an online portal for employers to record and facilitate payment of contributions.
This means that there should be very little administration for employers to cope with. All they need to do is to upload their profile information to the employer portal, select a payment method for contributions and inform employees of their enrolment date. They will also need to provide employees with clear information about the scheme and what it means for them.
They will need to complete a few tasks in advance of that, however. They will need to identify staff who will be auto-enrolled. After that they will need to ensure that payroll and HR systems are ready for the new scheme.
The direct cost of the scheme also needs to be catered for. Employers should budget for what is effectively a 1.5 per cent pay increase for those employees who will be enrolled in the scheme.
Employers who already have workplace schemes in place may wish to avoid this additional administrative work. “If employers can get all of their employees to join the occupational scheme by the November deadline and have them contributing to it through payroll deductions they will not have to participate in My Future Fund,” Ashling O’Neill, a certified financial planner with Clear Financial, advises.
“They should also make membership of the workplace scheme mandatory for all new employees, with no waiting periods involved, to ensure that they don’t unwittingly end up participating in the State scheme.”
