Irish pensions eye 'Dutch-style' plans
The Irish Association of Pensions Funds (IAPF) is calling on the government to encourage growth of industry-wide pension funds like those in the Netherlands.
Speaking last month at the IAPF annual conference, Patrick Burke, chairman of the IAPF and director for investment development at Irish Life Investment Managers, told delegates he believed "there may be considerable scope" to consider the development of occupational pension-style schemes that cover an entire industry sector.
"The Netherlands has large industry-wide schemes that have achieved solidarity and significant economies of scale," said Burke, adding he would like Ireland to use its social partnership culture to help improve take-up of pensions among individuals where coverage is at its lowest".
The IAPF has, as a result, been investigating the options the government could decide on to improve pension provision coverage and Burke stresses: "Further exploration of the [industry-wide scheme] approach is preferable to others".
Speaking to IPE, Burke added that he would like the green paper to look specifically at three possible reforms: more flexibility in the terms of pensions drawdown and annuitisation, along with the introduction of pension tax credits, and sector-wide pension schemes.
"If one just looks at the question of how to improve coverage, one of the approaches might be a mandatory [pensions contribution] system but that is effectively increasing tax contributions.
"We think sector-wide schemes would be more appropriate, based on the tools of our social partnership structure between employers, partners and trade unions, which is very effective in Ireland."
He continued: "Some sectors may not have as much union coverage as others but we are seeing an increase in defined contribution schemes from employers so this approach might be appropriate to service sectors; hairdressers, butchers, for example. The alternative is that all of the responsibility rests on the employee, and we have to tackle this with individual contracts. Under the employer-based [industry-wide] schemes, there is an oversight role, a supervisory role, and there is an employer participation too," he added.
There has been some success to the introduction of a sector-wide scheme in Ireland, as the Construction Workers' Pension Scheme of Ireland - set up last year to replace the Construction Federation Operatives Pension Scheme - now has in excess of 93,000 construction workers and 9,450 participating employers.
That said, there could also be some other consequences were the Irish pension market to shift more towards a Netherlands-based system.
Wil Beckers, a board member of the Dutch Association of Company Pension Funds (OPF) and a director of EFRP, predicted at the IAPF conference last month that the total number of pension schemes would reduce, as more employers move staff into sector-wide schemes, from 700 to "500 two years from now" as pensions move to "collective DC".
The Irish government last month also presented the long-awaited green paper on pensions including issues like scheme funding, retirement age and work flexibility - but giving no recommendations.
Within the paper's 278 pages, the government notes various options for reforming the pension system, including mandatory and soft mandatory approaches to second-pillar pensions as well as references to the UK's auto-enrolment regulation.
"I have an open mind on how the pensions system should develop in the future and I look forward to hearing the views of all interested parties on how we should proceed," Martin Cullen, minister for social and family affairs, noted at the presentation.
He said the government did not want to favour any option prior to the conclusion of the consultation. To ensure high participation in the consultation process, the minister intended to "leave it open until mid-2008".
"This quite long consultation period is good," Jerry Moriarty, director of policy at the Irish Association of Pension Funds (IAPF), told IPE. It gives proper time for proper debate and makes sure there will not be any rushed decisions."
He noted the green paper was "pretty much what the IAPF had expected" and commended it as a "very comprehensive" document that "covers everything we would have expected it to cover".
Separately, the Irish government has been urged to reconsider the obligation for defined contribution occupational scheme members to buy annuities at retirement. The recommendation forms part of a study on the Irish annuity market.
There is "no logical reason" for this "inequity" in the pension sector, consultancies Indecon and Life Strategies noted in their report, which has now been published by the Irish government.