Ireland, along with most western economies, faces a looming pension crisis as it transitions from defined benefit (DB) pensions to defined contribution (DC) pension schemes. The risk of investing/retirement security is transferred to individuals, typically without the financial knowledge to match the responsibility.

Without the tools to perform the necessary compounding or understand the impact of inflation, this has led to a growing pool of workers without sufficient provision for retirement. Ireland already has a looming fiscal burden from its public pension system and will struggle to bail out retirees with insufficient pensions.

Accurately assessing required pension saving is challenging

Auto-enrolment (AE) is a commendable effort to improve the savings rate, but it will not reach its potential if savers fail to make enough contributions or follow the wrong investment strategies. AE brings investors into contact with financial markets for the first time. These investors face two difficult decisions; how much to save to reach their desired pension income? And in which securities to invest over their potentially 40-60-year accumulation and decumulation lifecycle?

Accurately assessing required pension saving is challenging; a target fund-value is set, with contributions based on estimated returns. This is converted into a retirement income at an uncertain annuity rate, while real value of future income depends on an of inflation over the lifetime of saving. It is easy to underestimate the value of a fund required to generate a meaningful income in retirement. Few realise that a portfolio of €100,000 will struggle to bring in €500 per month, while the same amount in 20 years would generate less than €300 per month at today’s prices.

Big gap in modern pension policy

This highlights a big gap in modern pension policy, the absence of effective private pension arrangements that provide a guaranteed real retirement income. This problem has drawn contributions from leading thinkers in finance and economics. Nobel laureate Robert Merton and Arun Muralidhar have developed an innovative, government-issued, bond designed to fill this gap.

The Standard-of-Living-indexed, Forward-starting, Income-only Securities (SeLFIES) bond is a simple, low-cost, low-risk instrument. The cash flows of the product match the lifecycle of pensions savings, providing a direct link between real retirement income and savings, and making it easy-to-understand for even the most financially unsophisticated.

Saving products that clarify and target the end goal

The structure of the bond is simple and matches lifecycle cash flow requirements. The security pays nothing for a period, and then a fixed amount, say €10 monthly, adjusted for inflation for 20 years. We can take the case of a 26 year-old, planning to retire at 66.

This saver specifies the desired pension income today’s money and target retirement date. Our saver knows that to a pension of €1,000 per month in real terms, requires an accumulation of 1,200 SeLFIES with payments starting in 2065. This is easily converted to a need to buy 30 bonds annually over a typical 40 year working life. As importantly, by counting the number of SeLFIES held, the saver can track exact retirement income accumulated and the savings rate necessary for a target retirement income expressed in current terms.

The clarity and certainty of SeLFIES brings a third advantage – cost effectiveness. The simplicity of the product means that there is little need for expensive advice or investment management. A low-cost account of SeLFIES can be directly maintained by the NTMA, eliminating intermediaries’ fees (ideally through a Treasury Direct facility common globally).

The structure of the AE scheme means that 30 hours a week minimum wage employment will generate sufficient contributions (at the 3 per cent rate) to buy one SeLFIE per month, while a worker on the average industrial wage can buy three per month. At these levels of contribution, it is necessary to get the maximum return by minimising all costs, while ensuring simplicity and retirement security.

Ireland would not be launching an untried product. Brazil has successfully issued bonds based on the SeLFIES Structure. The Brazilian government launched RendA+ on their Treasury Direct platform in January 2023, issuing eight series with maturities running from 2030 to 2065. Although early, the products are popular. As of August 2025, 354,100 individuals bought the bonds, investing over BRL 7.6bn (€1.2bn).

While we have focused on the application of SeLFIES to improve pension provision for unsophisticated investors, the security’s benefits extend well beyond that single purpose. The bonds can facilitate the operation of more complex DB portfolios.

An allocation can provide a baseline income, allowing more confidence to invest in riskier securities while they are an ideal security as portfolios transition from equities to bonds in the later stages of pension savings. This security of income is particularly important for planning an early retirement. And they are also inheritable should the participant die young.

At the macroeconomic level, they provide a long-dated, domestically funded debt for governments at a time of multiple calls for long term capital investment: from housing to green energy infrastructure, to the up-front costs of implementation of recommendations of the Draghi report. First mover advantage, coupled with low debt to GDP and high credit rating can lower Ireland’s cost of borrowing as well as improve pension outcomes.

As the pace of transferring the responsibility of saving for retirement to increasingly less financially sophisticated investors, the risk of economic and social disruption from underfunded pensions is growing. My Future Fund is a step in the right direction but will not solve the problem alone. To maximize the benefit of this, or any AE scheme, it must be accompanied by saving products that clarity in both defining the end goal and the savings rate required to reach that target. SeLFIES are designed for just this purpose.

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