Causes for concern – views from the IAPF
Pensions have become more important every year. As the Irish minister for social affairs, Seamus Brennan said recently, the pensions dilemma is one of the most important challenges facing society and this generation.
National Pensions Review (NPR) Report: The minister brought forward a review due to take place by the Pensions Board in 2006 to 2005. This was because government targets of increasing pension coverage in Ireland were not being met. IAPF submitted three documents to the review – our NPR submission, a discussion document on a State Annuity Fund and a research paper on ‘Pension Provision in Ireland for the 21st Century’. After completion of the review process, the report was launched in last month and the IAPF has welcomed its publication.
The NPR report states that the current level of pension coverage continues to be a cause for concern with almost half of Ireland’s workforce with no personal pension.
One of the options considered under the review was mandatory pensions. IAPF came out against mandatory pensions as we believe in simplifying the pension system and making pension more attractive. IAPF welcomed the NPR reports’ proposal for incentivising PRSAs but urged the minister to ensure that all forms of pension provision, including occupational pension schemes, operate on a level playing field from a tax perspective.
Funding standard: The current regulatory regime where the minimum funding standard is benchmarked on an annual basis against market annuities, if left unaltered, will result in a dramatic reduction in defined benefit coverage in the private sector over a short period of time. Pension funds need to be given more breathing space to allow them the opportunity to continue the recovery which has been taking place over recent years. To avoid this situation, IAPF urges changes in the funding standard to include the possible introduction of a new state annuity scheme which would fund pensions in the event of a scheme collapsing. We welcome that a priority task for the incoming new Pensions Board will be a comprehensive review of the funding standard.
Defined contribution schemes: IAPF believes it is dangerous to focus solely on the issue of the numbers of individuals covered by pension schemes and lose sight of the need for such individuals to accumulate an adequate level of retirement savings. Rather than mandatory pension savings, the IAPF argues that the lower paid should be incentivised by allowing tax relief on pension contributions at the higher tax rate. Members should not be forced into annuity purchase upon retirement, especially at a time when record low bond yields significantly reduce the purchasing power of their retirement savings.
In striving to achieve harmonisation and good security for pensions, we should resist the urge to over-regulate. However, more regulation is being considered at Commission level – new portability and solvency requirements. The solvency rules apply to insurance schemes but are being considered for pensions schemes. Portability aims to harmonise the many different pension arrangements across Europe and this will prove a huge task. Regulation is important but it must not become the objective itself.