knowledge 2 September 2026

MCF horizons Podcast Series Ep.3: The Pensions Timebomb

In this episode of MCF horizons, Eleanor Cunningham and Clementine Farrell explore the changing pensions landscape, the impact of auto-enrolment, and why understanding your pension is more important than ever.

 

Audio Transcript

Transcript available to view here, or in full below.

[00:00 - 00:22]

Welcome to MCF horizons, McCann FitzGerald’s podcast series where we explore the legal and market developments, trends and policy milestones that are shaping today's landscape. Through conversations with our lawyers, we share practical, forward-looking insights to help organisations navigate change and make informed decisions. Now let's turn to today's episode.

[00:22 - 00:40]

Welcome to the podcast. I'm Eleanor Cunningham. I'm Partner and Head of the Pensions and Incentives Group at McCann FitzGerald and I'm joined today by my colleague Clementine Farrell, who is Of Counsel in the Pensions and Incentives Group. So what are we going to be talking about today? Well we're talking about pensions and how that's going to shape the workforce of the future.

[00:40 - 01:14]

And there are three aspects to this which are all linked. The first is longevity. We are all living longer. Second is coverage. How many of us are actually in a pension scheme or arrangement? And the third is adequacy which is, if you are in a pension scheme or arrangement, are you saving enough? And over the next while, Clementine and I are going to talk about what's changed, both in terms of the numbers and the law, and this is relevant whether you're a HR professional or a business owner, and you're planning your workforce over the next couple of years, or if maybe you're just considering your own retirement.

[01:14 - 01:35]

So we'll start with maybe a question rather than any facts and figures. Maybe take a moment to think, what do you think you will need to live on in retirement on an annual basis? In 2024, the Pensions Council sought to answer this question, and they produced some really helpful statistics and guidance, which is on their website, for anyone to look up.

[01:35 - 02:04]

And they tracked what they thought a modest retirement might look like, a moderate retirement, and then a more comfortable retirement. And more recently, Royal London Ireland has released data which shows that the Irish workers, the average Irish worker, thinks they’ll need just under €41,000 a year to live on in retirement. Now our State pension, the most you can get under our State contributory pension at the top end, is just over €15,500 a year.

[02:04 - 02:33]

So you can immediately see there's a bit of a gap there. And added to that is the fact that we're all living much longer. So the number of people in Ireland over the age of 65 is set to double in the next 25 years. And that's amazing advancements in medical science and everything else. But it's also an expensive achievement because people are going to be living much longer and in retirement much longer, and the money to fund all that has to come from somewhere.

[02:33 - 02:57]

And allied to that, we are having less babies. The birth rate in Ireland has been steadily declining for years, as it has been across most of the Western world. But what does that mean? It means that proportionately, there are far fewer people working compared to the people who are in retirement. And we need working people to pay tax, pay PRSI, fund the State pension and keep the whole system going.

[02:57 - 03:31]

And these two factors, the fact that we're living much longer lives, but we're having far fewer children, is what contributes to what we would colloquially call the pensions timebomb. So what we're going to do today is talk a little bit about Ireland's response to that in terms of policy and law.

And the law has moved on a number of fronts on this. The first thing we're going to talk about is mandatory contractual retirement ages. The second thing we're going to talk about then is auto-enrolment, which came into force in January of this year and has been a great success.

[03:31 - 03:33]

We'll talk a little bit about that.

[03:33 - 03:57]

Third thing then we want to talk about is changes to the standard fund threshold, which is the amount of pension that you're allowed build up in a tax efficient manner. And finally, we're going to talk about changes to the State pension age. So Clementine let's start with mandatory retirement ages. I know this has been keeping us quite busy at our desks for a number of months, but for those who are unaware, could you tell us a little bit about the Contractual Retirement Ages Act?

[03:57 - 04:27]

Absolutely. So the Act came into force in June, and the purpose of the Act is to create a mechanism for those who have a retirement age of below 66 to request to continue working until they reach 66, which is the State pension age, and when they become entitled to the State pension.  I’m well aware it's a piece of employment law and that there is a whole podcast in it for our employment colleagues, but it is going to have knock-on consequences for pension benefits.

[04:27 - 04:43]

And actually some people go so far as to say the success of the Act actually will depend on how it interacts with pension benefits and whether people will be able to continue accruing pension benefits during that additional period of employment.

[04:43 - 04:56]

Yeah, because most pension schemes, the retirement age from a pension scheme is 65. So the retirement age in your pension scheme and contract are not always linked. So what's generally the contractual retirement age?.

[04:57 - 05:27]

Speaker 4

Absolutely. So typically its 65. And that's really driven by the State pension age. So historically the State pension age was 65. It was that age up until 2014 and had been the case for almost over 40 years in fact. So not all contracts of employment have kept pace with the State pension age. So there are individuals who are now still required to retire at 65 years of age, but they have no entitlement to a pension under 66.

[05:27 - 05:50]

So they have a year gap to make up – an income gap. And while there are social welfare benefits that they can apply for, so , for example, a jobseeker's allowance or the benefit payment for over 65 year olds, those benefits aren't guaranteed. You have to apply for them. There's qualifying criteria and you might not qualify or you might qualify at a reduced rate.

[05:50 - 05:54]

So there's still that income gap to be made up for those individuals.

[05:54 - 05:57]

So why is this legislation significant then?

[05:57 - 06:25]

Well, it's so significant because where an employee makes a request that complies with the legislation, the employer is obligated to respond within one month. And the employer has two choices. They can either agree to the request or come to some mutual agreement between what age before 66 that individual will continue working to, or the employer can refuse, but if the employer refuses, they have to provide a written response to the employee.

[06:25 - 06:48]

They have to say why the contractual retirement age they have is objective and reasonable, and they have to justify the legitimate aim that it is seeking to address by enforcing that contractual retirement age. So it's no longer the case that an employee can make a request, the employer can refuse, and we all move on.

[06:48 - 06:55]

And if they accept it, does their current contract of employment just continue on in force? Or what does the legislation say on this?

[06:55 - 07:16]

You'd think that would be quite clear. But actually the Act is silent on it. It doesn't expressly deal with this, nor does the Workplace Relations Commission's code of conduct expressly deal with it. But it certainly seems to be envisaged that if a request has been accepted, that that individual will continue on their current terms and conditions of employment.

[07:16 - 07:30]

And I know one of the questions that you and I are getting asked a lot about is the interaction with an acceptance of a request and pension scheme rules on death benefits. So what's the effect on pensions and death benefits like, and insured arrangements?

[07:30 - 07:53]

Sure. So well, the first thing that an employer is going to have to do is assess what the retirement age of the pension scheme is. So typically, you’ve said before it's often 65 years of age. So an employer needs to consider is there a mechanism for members to late retire. Can they defer their retirement, defer drawdown of benefits until they actually retire?

[07:54 - 08:19]

But crucially, can they continue to accrue benefits during that period of time? And so then in respect of death benefit arrangements, those are typically insured with a life office. And again typically they end at 65 years of age. So an employer needs to assess whether or not those benefits can be extended.  If they can, at what cost to the employer and are there any qualifying conditions.

[08:19 - 08:44]

So one of the things that comes up again in practice is because pension schemes have different retirement ages than contracts of employment, some schemes just don't allow for further accrual after age 65. Commonly a defined benefit pension scheme’s normal retirement age will be 65. In a defined contribution scheme, it can be more flexible between 65 and 70. But what do employers need to consider in the scenario?

[08:44 - 09:08]

Well, the first thing they need to do is to confirm what their contract, what the contracts of employment say. Do they say that the payment of retirement benefits and retirement benefits are dealt with in accordance with the governing documentation of the scheme? If they do, and the limit in the pension scheme is 65, the employer is in a stronger position to say the current benefits cannot be maintained.

[09:08 - 09:18]

Then the crucial decision is what different but largely equivalent benefit can the employer provide for that additional period of employment?

[09:18 - 09:35]

Yeah, there's a bit of thought to be done there. But really, in summary, the Act is a key change in terms of allowing someone to request to work to the State pension age. Now, the next thing we want to talk about is auto-enrolment, which was the big news in pensions this year. And it has been something that's been 25 years in germination.

[09:35 - 09:47]

So it finally came into force in January of this year for private sector workers who weren't already covered by a pension scheme. So how is it going so far?

[09:47 - 10:15]

The long awaited AE.  So, the intention of AE is to provide individuals with an ability to build up an additional pension pot outside of the State pension. You mentioned the private sector. So before auto-enrolment came into being, it was estimated that about 35% of the private sector had no additional pension savings other than the State pension.

[10:15 - 10:43]

And appreciate everyone who's listening to this is probably very well versed at this stage about auto-enrolment, but it's important to remember what the qualifying criteria are. So it applies to those who are between the ages of 23 and 60, earning over €20,000, but it's subject to a cap of €80,000, and they're not receiving the minimum contributions into either a pension scheme, a PRSA or a PEP.

[10:43 - 11:15]

And it applies to all employees. So existing, employees on probation, casual employees, temporary employees, it's all based on what is going through payroll. So Revenue carry out a 13-week look-back period and they determine whether or not individuals meet those criteria. And if they do, they’re automatically enrolled. Now the one thing, just again to remind people is that automatic enrolment doesn't apply to the self-employed or to the unemployed.

[11:15 - 11:26]

Yeah, but the statistics at NAERSA, which is the body responsible for running My Future Fund, as it's known, have been very positive so far and there’s been a huge sign-up of voluntary people that didn't actually have to.

[11:26 - 11:50]

Absolutely. Now, nine months in, it's estimated that about, well over 6,000 people have voluntarily joined up. So that's people who weren't caught within that qualifying criteria I mentioned. So they have made the decision to actually sign themselves up to it and thereby have triggered not only their contributions but their employers’ contributions and the State. So that's a really positive development.

[11:50 - 12:08]

And actually interestingly, as well, we came to the end of the first opt-out period at the end of August, and that's the period during which those who were required to join could decide whether or not to stay in My Future Fund. And so far, it's only estimated that about 1.5% have taken up that that ability.

[12:08 - 12:27]

So that's again, a really positive development. But I would say that those individuals have chosen to opt-out. They are going to be auto-enrolled again in two years’ time. And when we reach the maximum contribution rates under auto-enrolment in year ten, the ability to opt-out is simply going to be removed.

[12:27 - 12:51]

Yeah, and when auto enrolment first came in, we spent a lot of time advising our employer clients about how it was going to work in practice because there are kind of issues with it if some of your workforce had a pension and you’d other staff who maybe were going to be auto-enrolled. Difference in coverage terms. And there are lots of nuances about, you know, how their contributions are calculated and so forth, and a lot of that is still being worked out.

[12:51 - 13:13]

But for the purposes of this podcast and what we're talking about here, I think it's just important to remember it's not a silver bullet. So if you are - you mentioned the contribution rates at the moment, the employer contribution rate and the employee contribution rate is 1.5% of an employee's gross earnings up to a maximum of €80,000 a year.

[13:13 - 13:36]

And then the State top up is 0.5%. So that's 3.5% in total of a maximum of €80,000, which is certainly better than nothing, but wouldn't go to that sort of adequacy point that we've been talking about – its probably not enough. And the people who'll benefit from auto-enrolment most really are young people. So the younger you start, the more time you have to build up a meaningful pension pot.

[13:36 - 14:01]

If you are later in your career or you're older, it's just going to be harder on those contribution rates because you mentioned in ten years, in 2036, the contribution rates will be 6% for an employer, 6% for an employee and 2% from the State , which is 14%. But crucially, there's no ability for anyone to make additional voluntary contributions above that, which is common in other pension schemes.

[14:01 - 14:23]

So even if you wanted to save more, there's no ability in auto-enrolment to do that. Now we understand that that's being considered. So legislation may come in the future. But in the meantime it means that if your workforce are in auto-enrolment, you still have an obligation to provide them with access to a PRSA so that they can make AVCs through a different vehicle.

[14:23 - 14:34]

So we'll hopefully see a few changes to make it a bit more user-friendly. Auto-enrolment is only a few months old and it's been a great success so far, so that might be something that's coming down the track.

[14:34 - 14:56]

Absolutely. We certainly hope so. It has been one of the criticisms that you can't make AVCs. So it is part of the broader package of trying to address this adequacy issue. I know there have also been some developments with the State pension. The Government is trying to make that a bit more flexible, but the State pension is a question in itself.

[14:57 - 15:16]

Yeah, and maybe we'll come to that next. Like this is a question that all other countries are grappling with. You know, there have been protests in France about moving state retirement age.  In Denmark now they've announced that they're moving the state retirement age to 70 in the year 2040. And now we haven't gone down that road, but we have made some changes to the State pension, haven't we?

[15:16 - 15:48]

Yeah. So in 2024 the Government introduced State pension deferral. So anyone who was born after the 1st of January 1958 can actually now choose at what stage to draw down their State pension, as long as it's between 66 and 70 years of age. And in return for deferring drawdown, that individual gets an increased State pension. Now, the amount of the increase is directly related to how long they choose to defer it for.

[15:48 - 15:53]

So if you defer, can you keep working and building up PRSI contributions?

[15:53 - 16:15]

Crucially, you can, and that's really important for those who have perhaps employment history gaps. So they might not, at the point they reached 66, actually have the requisite PRSI contributions to receive a full State pension. So this gives them the ability to defer drawdown, keep working and keep making PRSI contributions.

[16:15 - 16:16]

There's two women here.

[16:16 - 16:43]

So well that's it. Exactly. So I'm very conscious that it's often females that have these gaps in their employment history, typically because of caregiving responsibilities. And look we're all very aware of the gender pay gap. But what's less talked about is the gender pension gap. Now again, topic and podcast topic in itself. But the factors that drive the gender pension gap are the same as the gender pay gap.

[16:43 - 16:55]

And in the gender pension gap, it means that females are more at risk of pension poverty than males, not least because we tend to live longer.

[16:55 - 17:00]

So if you want to defer your State pension, you want to keep working, what do you have to do?

[17:00 - 17:24]

Surprisingly little. It's actually very straightforward. You just don't do anything. You actually have to apply to receive the State pension. You have to complete certain forms, etc. so if you want to defer it, you simply don't do that and you only do it when you do want to draw it down, subject to the caveat that there's a three-month notification period, so you can't just automatically or expect that it’ll immediately come into payment, I should say.

[17:24 - 17:45]

And a key point in that as well, just for employers to note, is that if you now have employees who are working beyond 66 years of age, you need to know whether or not they have drawn down the State pension, because if they have not, that's where the additional PRSI contributions are relevant. Both the employee and the employer have to pay them.

[17:45 - 18:07]

And speaking of tax, we might go on to our last topic on this, which is the standard fund threshold. But before we discuss that, I might just remind people why it's worth saving to a pension in the first place. It's really one of those most underrated benefits that we have. Because if you're saving into an occupational pension scheme or a PRSA,

[18:07 - 18:25]

your contributions are taken out of your gross income, which means that it's a huge advantage in the hands of the saver. A euro into your pension is costing you far less than a euro in terms of deductions to your take home pay, but Revenue caps this tax relief in a number of ways, and we're going to talk about that now and how it's changed.

[18:26 - 18:49]

First there is an age-related cap. So Revenue cap the amount of your income that can be taxed efficiently put into a pension scheme. So there are different bands. If you're under the age of 30, it's 15% of your income that can avail of the tax relief. And there are various bands up to 40% of your income if you’re aged 60.  Then secondly, there's an earnings limit.

[18:49 - 19:15]

So the amount of salary that will be taken into account for these calculations is €115,000 a year. In that example earlier, if you're under the age of 30 and you are earning over €115,000 a year, it's 15% is the max that you will get this tax relief on.  The third way Revenue cap tax relief into a pension scheme is called the standard fund threshold, which is the amount of your pension that you're allowed accumulate in a tax efficient manner.

[19:15 - 19:17]

And there have been changes to that recently.

[19:17 - 19:42]

Yeah, absolutely. So it's often referred to colloquially as the SFT. So as you said, it's the maximum pension pot you can build up in a tax efficient manner subject to the limits you just mentioned. So any amount which is over that SFT limit is subject to prohibitive tax rates, and it's called chargeable excess tax and currently runs at a rate of about 40% when you draw down.

[19:42 - 19:55]

So significant. Now again there's discussions that that rate is being considered at the moment. And by 2030 there will be a report in respect of it. And there may be some justification to reduce it to 10%.

[19:55 - 20:20]

Yeah, exactly. But where are we now. So up until this year the SFT has been €2,000,000. Now it increased this year to €2,200,000. And it's going to increase by a further €200,000 each year until we reach €2,800,000 in 2029. And then from 2030 on, it's going to be index linked to average earnings and determined by the CSO.

[20:20 - 20:47]

And that all sounds great, but we have to remember where we came from. Like when the SFT was first introduced back in 2005, the limit was €5,000,000 and it was obviously reduced in the wake of the financial crisis. So while €2,800,000, €3,000,000 million index-linked sounds like a huge pension pot, it may not be, it depends on the lifestyle you want to lead in retirement.

[20:47 - 20:49]

And so it's a deeply personal question.

[20:49 - 21:08]

Then inflation of course. And before 2005 there was no standard fund threshold. And they've gotten rid of the standard fund threshold in the UK altogether. So there is no limit on the amount. So we are a way from that. So I think if there's one thing we want you to take away from today, it's this: it’s that longevity, adequacy and coverage aren’t three separate problems.

[21:08 - 21:34]

They are three parts of the same issue and the law is moving on all of them at the one time. So if you're managing a workforce, that means thinking about workforce planning now, what are your workforce going to need in the coming years? Start looking at your contracts of employment and your pension scheme documents. Maybe start trying to anticipate if they're going to want to or need to continue in the workforce longer and how you're going to support and manage that.

[21:34 - 21:52]

And if you're an individual, it's very tempting to put your head in the sand and not think about these things, particularly if they’re a few years away. But really, it's best to start thinking about it now. Start having conversations before the numbers catch up with you. So thanks for joining us. I'm Eleanor Cunningham, I'm with Clementine Farrell.

[21:52 - 21:53]

We'll see you next time.

[21:54 - 22:04]

Thank you for listening to MCF horizons. For more insights and updates, visit mccannfitzgerald.com. And don't forget to subscribe to stay up-to-date with future episodes.