Pensions Report

30 Focus On: Pensions A Special 4-Page Report COMMERCIAL REPORT

The SundayBusinessPost October7,2018

Ireland’spensionslandscape pavingthewayforchange

A gainst a backdrop of an improv- ing econ- omy, this week’sbud- getisalready generatinghopesofgenerosity in some quarters, not least a hike in the state pension. An increase, while a welcome

Peoplewant helponpensions, so the government is introducing newmoves to give themahand, writes SiobhánMaguire

moveforthoseinreceiptofthe payment, is reflective of the country’s concerted effort to put pensions under the spot- light, especiallywhereprivate pots are concerned. The government’s plan to curtail Ireland’s ticking pen- sions timebomb is already in full swing, with a public consultation process on au- to-enrolmentunderwaysince August until early November, and an ambitious roadmap aimedatconvincingthework- ingmasses tosave for their re- tirement. The endeavours are much needed. Ireland has a dire re- cordwhenitcomestopension ownershipamongemployees – just 35 per cent of Irish pri- vate sector workers are en- rolledinoccupationalpension schemes, while 47 per cent of those in employment have a supplementary pension. Last month, in a survey compiled inconjunctionwith YouGov, State Street Global Advisors (SSGA), the interna- tional financial services firm, quizzedpeople ineight coun- tries at every stage of the re- tirement savings spectrum, to determine different attitudes and approaches to pensions. InIreland,thefindingswere alarming.Onlyaquarterofre- spondents felt confident that they would be able to retire when they plan to. Just 15 per cent of people in Ireland said they were optimistic about their financial situation in retirement, far below those of the US, and marginally aheadofBritain,bothofwhich have significantlyhigher par- ticipation rates. According to the SSGA, the finding may be partly down to the high- er state pension in Ireland, at €238 per week versus £126 (around €141). Interestingly, people want help and toknowmore about pensions. When asked for the top three places that they would seek help from when decidingwhat todowiththeir pensioninretirement,thema- jority said they would seek advice from an independent financialadviser(42percent), theircurrentpensionprovider (41percent),ortheiremployer (39 per cent). Which makes the government’s Roadmap for Pensions Reform 2018- 2023, even more poignant, and timely. AnnPrendergast,managing directorandheadof Irelandat state Street Global Advisors, saidthereformmeasureswere essential in securing Ireland’s pension future. “We’re not the only coun- try facing a timebomb when it comes to pensions – this is a global issue,” she said. “In setting offon a pathof reform though,wehavetheadvantage of being able to follow in the footsteps of other countries that have gone before, rep- licating some of what works and taking lessons fromwhat

behind pensions was simple – save now and spend later. “However,itisclearthatmany peoplefindpensions compli- cated,” she said. “Too many find it difficult to save what they need for retirement.” For this reason – and the poor take-up of private pen- sions among employees, au- to-enrolment strives towiden the pensions catchment net, withplansforthesupplemen- tary scheme to be in place by 2022 for 900,000 workers. The scheme,whichwill see workers contributing up to 6 per cent of their wages, with the amount matched by their employers.Thestatewill con- tribute €1 for every €3 put in by workers. Auto-enrolment will apply to all workers aged between 22 and 60. It will bring around 410,000 into a defined contribution (DC) pension scheme for the first time. “Abouthalfoftheworkforce are currently making some sort of retirement savings,” said Moriarty. “The auto-en- rolmentplanwillcoveraround 410,000 people. If people are opted in, theycanonlyoptout in months seven or eight, so if you opt into the systemyou are prettymuch in it for good. If you do decide to come out, yougetputbackineverythree years anyway, so the idea is thatpeoplewillthinkthatthey should be doing something where retirement savings are concerned.” Moriarty saidwe need only looktoacrossthewatertoBrit- aintoseehowauto-enrolment can work. “Itwas introduced there six years ago, and they’ve got an additional ten million people saving for retirement who previouslywerenot, and they have very lowopt-out rates,” he said. “Retirement saving is something that people just aren’t doing, or don’t have the time to do it and are generally happythatsomebodyelsewill do it on their behalf. “The biggest thing here has been the publication of the auto-enrolment straw- man which is like a model for how auto-enrolment will work here where everybody between the ages of 23 and 60 earning over €20,000 a year, and who doesn’t have a pension currently, will have to be put into a pension plan that they and their employer and the state would pay. This is obviously a huge change from a system that is purely voluntary now.” The launch of the gov- ernment’s Strawman Public Consultation Process for Au- tomaticEnrolmentlastAugust gives members of the public the opportunity to submit views and recommendations ontheproposedscheme,with a deadline of November 4 for observations. “Through this consultation process, the government will

seek to generate as broad a consensus as possible and ensure that the final design of an auto-enrolment system will be trusted by employees andemployers,willbeafford- ableandwillenhancepersonal independence during retire- ment,” said Doherty. Anotherchangesettoshake up the world of pensions is a newEUdirectivewhichcomes into effect in January of next year. The IORPs II directive willmake clearer the respon- sibilities of trustees to man- age their schemeswell and to work actively in the interests of members. The significance of this im- pending rule has been voiced by the Pensions Authority, which in its annual report published last July reiterated its importance for trustees, thosewho are responsible for company pension schemes. “The directive’s require- ments are not just differenc- es of degree,” said Brendan Kennedy, the Pensions Regu- lator. “Trusteeswill beobliged to adopt a more formal and documented approach to all aspectsoftheirwork,andthey willhavetodemonstratetothe authority that they are com- plying with their duties. The authority will have addition- al powers to obtain scheme information and to intervene where appropriate, as well as a wider range of sanctioning powers.” Moriarty said the directive, whichmustbetransposedinto Irish law in January, would have a lot of focus on gover- nanceofpensionschemesand wouldrequire that at leastone trustee in a pension scheme will have a trustee qualifica- tion.Hesaid thePensionsAu- thority was actively working ontheapproachingdirectiveto ensureasmoothtransitionfor smallerpensionschemes,who wouldotherwisebeexposedto higher running costs because ofmore stringent governance stipulations. “The regulator sees this as being difficult for smaller pension schemes who won’t have the budget or time to meet those new governance requirements,” he said. “The regulator is really looking at greaterconsolidationschemes. “At the moment, each em- ployer sets up their own pen- sionscheme. If theyhave, say, five employees, that is a very small scheme, and your costs tend to be higher if you’re smaller rather than bigger. “What the Pensions Au- thority is trying to do con- sidering the directive is get more schemes to move into multi-employer schemes, called a Master Trust. This is essentially one big pension scheme with lots of different employers within it, where you’ve only one set of trust- ees and they are more likely to be professional, and there is an ability for lower costs.”

does not. “We’re not going to get all of this right on the very first attempt, but it is important to take the first step and raise pensioncoverageimmediate- ly,orelseweriskfurtherdelays in reform. As we progress on the path we can tweak and adapt as the system becomes established.” Although pension reform has been proposed during previousgovernmenttenures, there is an element of hope among pension experts and financialprofessionalsthatthe currentroadmapproposalwill see the light of day. JerryMoriarty, chief execu- tive of the IrishAssociation of PensionFunds(IAPF),agroup who represent Irish pension savers, said there was a huge amount of activity inthepen- sion policy spacewith a lot of theelementsarisingoutof the roadmap. “Theroadmapisquitecom- prehensive,” he said. “The Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF) concern is thatwhile it’sgreat toputstuffdownonpaper,will anything happen?We’ve had a lot of reform plans over the last 25 to 30 years and some thingshavebeendone,butof- ten these reports are put back ontheshelf because it’snever the right time froma political perspective. “However, Iwouldbemore confident with this roadmap, because it sets out very clear- ly the timelines and who has ownershipoftheissuesaswell as the consultations that are ongoing. It does need a polit- icalwilltogothrough,butthat does seem to be there now.” ReginaDoherty,theMinister for Employment Affairs and SocialProtection,saidtheidea Auto- enrolment strives towiden thepensions catchmentnet

Untitled-1 1

02/10/2018 19:07

Made with FlippingBook - Online magazine maker