FEBRUARY 2015 (MAGAZINE)BY CARLO SVALUTO MOREOLO  www.IPE.com

At its first meeting of 2015, the Irish Cabinet discussed the introduction of a “new, universal supplementary pension savings scheme”. The plan was presented by Joan Burton, deputy prime minister and minister for social protection. Burton unveiled a roadmap and timeline for the introduction of the scheme, the details of which have not been disclosed.

The proposal flows from the Irish government’s commitment to “reform the pension system to progressively achieve universal coverage, with particular focus on lower-paid workers”. Ireland recorded an average score in Mercer’s Melbourne index published last year, ranking thirteenth out of 25 countries overall. However, in terms of sustainability, it was ranked twentieth, based on the poor outlook for its state pension and limited coverage. Lawmakers are concerned with low pension coverage and over-reliance on state pensions – two weaknesses highlighted by a 2012 OECD review of the Irish pension system, commissioned by Burton herself. According to the OECD report, in 2010 only 41.3% of Irish workers were covered by a supplementary pension plan.

In future, the strength of the pension system will depend on whether coverage increases to a satisfactory level. One of the key policy recommendations of the OECD to address this was compulsory membership.  However, the core of Burton’s strategy to neutralise the ‘pension time-bomb’ is to introduce automatic enrolment. A policy seen as more politically viable.  However, she has said several times that the Irish economy has to fully recover first. The state of the economy has been blamed for the government’s hesitance to implement the OECD’s policy recommendations.  Nevertheless, the government looks set to start working on its coverage-boosting plan.

The design of the new scheme will be discussed by the universal retirement savings development group, a committee that will bring together representatives of government departments and other state agencies. These include the Revenue Commissioners, the National Treasury Agency, the Irish Central Bank, as well as the Pensions Authority, Ireland’s pension regulator, and international experts.

Before automatic enrolment is introduced, there are a number of unanswered questions in the Irish DC landscape that lawmakers need to prioritise in order to improve overall retirement outcomes for Irish employees. At the moment, three types of DC plans operate in the country – occupational pension schemes, personal retirement savings accounts (PRSA), and retirement annuity contracts (RAC). However, because of the number of different options in terms of benefit payouts and tax relief, multiple arrangements can be made between employers and employees, making the choice difficult to say the least.

Jerry Moriarty, CEO of the Irish Association of Pensions Funds (IAPF), says that if the plan is to introduce automatic enrolment, work needs to be done ahead of time to make Ireland’s pension system simpler. “We have a very complicated pension system, and simplification has to be at the top of any agenda,” says Moriarty. “There are too many different routes that apply in terms of contributions, benefits and tax relief. There needs to be tailoring options for employers, but the same routes for members should apply across all products and, in reality, it should just be a matter of choosing whether one wants to be in a contract-based or in a trust-based scheme.”