Pensions report: Ireland's auto-enrolment makes a strong start
The My Future Fund saw eligible workers between 23 and 60 earning more than €20,000 be enrolled automatically. From January to September, participation had risen to more than 825,000 workers and contributions exceeded €500m.
When the long-awaited and long-delayed auto-enrolment scheme came into effect on January 1st, it was heralded as the most significant reform of the pension system in a generation.
After decades of discussion and delays, the State finally moved to address the thorny issue of hundreds of thousands of workers without an occupational pension and who would likely have to rely heavily on the State pension in retirement.
A year on, and the evidence suggests the scheme has made a strong start, dramatically increasing pension participation. Yet significant challenges remain around affordability, pension adequacy, employer costs and public understanding of retirement saving.
The headline figures are impressive. Just a month in, more than 763,000 employees working for almost 104,000 employers had been automatically enrolled and more than €60m in contributions had already been invested. By September, participation had risen to more than 825,000 workers and contributions exceeded €500m.
Auto-enrolment appears to have overcome the lack of engagement, which had prevented many workers from joining pension schemes voluntarily. The My Future Fund saw eligible workers between 23 and 60 earning more than €20,000 be enrolled automatically. Contributions begin at 1.5% from both employer and employee, with a State top-up, and rise gradually over a decade.
Employees have the option of opting out but the retention rate is particularly encouraging. Research conducted by Ask Acorn in advance of the first opt-out window found that 84% of enrolled workers planned to remain in the scheme, while just 16% intended to leave. Participation was strongest among workers aged 25 to 34, with 89% indicating they planned to stay enrolled.
Keith Butler, chief executive of Ask Acorn, said the scheme succeeded in achieving its core objective. “Auto-enrolment has succeeded in getting people engaged with pensions. The next conversation should be about whether people can now afford to do more.”
The scheme also helped address pension coverage gaps in sectors that have historically seen low levels of pension investment. Analysis by GSB Capital Ireland found particularly low levels of pension participation among workers in agriculture, hospitality, construction and lower-paid occupations. More than half of employees without pensions cited the fact that their employer did not offer a company scheme. Auto-enrolment effectively bypassed that barrier.
Government officials also argued that the scheme's administrative design reduced complexity. Rather than requiring employers to establish and manage pension arrangements themselves, the National Automatic Enrolment Retirement Savings Authority (NAERSA) handles much of the administration, including enrolment, contribution calculations and employee communication.
However, despite its successful launch, several warning signs have emerged during the scheme's first year.
The most immediate concern is affordability. Although contribution rates are relatively modest initially, employers, HR professionals and pension experts have repeatedly highlighted the impact of deductions on workers already struggling with living costs.
In advance of the scheme's launch, the CIPD warned that many lower-income workers would face difficult choices. Alison Hodgson of CIPD Ireland, argued that pension policy could not ignore financial reality. “For someone juggling bills, rent, and groceries, even a modest pension deduction can make the difference between getting by and going without.”
Evidence of those pressures has already begun to emerge. Ask Acorn's survey found that while younger workers broadly supported the scheme, 27% of enrolled 18-to-24-year-olds planned to pause contributions rather than continue uninterrupted participation.
A second and potentially more serious issue concerns whether auto-enrolment will ultimately provide enough income in retirement.
The scheme was designed primarily to increase participation rates rather than guarantee a particular retirement outcome. Yet several surveys suggest many workers are unconvinced it will deliver sufficient retirement income on its own. Research from Royal London Ireland found that 97% of non-retirees believe the State pension alone is insufficient for retirement and that workers expect to require an average annual income of more than €40,000 in retirement.
Separate research from Ask Acorn found that 81% of workers eligible for auto-enrolment do not believe the scheme on its own will provide adequately for their retirement. Nearly half said it would help, but would not be enough, while one-third described it as “nowhere near enough”.
Industry figures generally support the principle of auto-enrolment but warn against viewing it as a complete solution.
“Auto-enrolment should certainly help boost pension coverage, but for many workers, the pension delivered by auto-enrolment may not deliver a sufficient income in retirement,” Mark Reilly, Royal London Ireland, said.
General literacy and a lack of understanding has always been a blocker to greater pension take-up.
Research commissioned by NFP Ireland shortly before launch revealed widespread confusion around basic pension concepts. Three in five young adults did not understand how pension tax relief works, while large numbers of respondents were unclear about contribution limits, State pension rules and retirement planning fundamentals.
Employers have also expressed concern about rising costs. While the initial 1.5% employer contribution is relatively modest, it comes on top of increases in PRSI, minimum wages and other employment-related expenses. The Small Firms Association has repeatedly cited auto-enrolment as one of several measures increasing pressure on small businesses.
Government briefings released under Freedom of Information legislation revealed that some large employers explored options to move workers into alternative pension arrangements offering lower employer contributions than those available through My Future Fund. Officials criticised attempts to steer workers into what they regarded as inferior arrangements.
Overall, the first year of auto-enrolment can reasonably be judged a success. Participation levels have exceeded expectations, opt-out rates appear low and more than 800,000 workers who previously lacked pension coverage are now building retirement savings. The scheme has succeeded where previous pension initiatives struggled, getting people enrolled.
However, challenges remain. This autumn and winter see households come under renewed financial pressures, stung by a variety of cost-of-living increases. Home utilities, health insurance and fuel at the pumps are just a small selection of household bills which have risen sharply.
As contributions increase and workers seek ways to save money and cut expenses, there may be a temptation to pause contributions or even to opt out. Auto-enrolment has succeeded in getting people saving. Whether it can ensure they save enough remains the defining question of year two.
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