IRELAND - Contribution levels set out in the National Pensions Framework will send out the wrong message to members of defined contribution (DC) schemes, the Irish Association of Pension Funds (IAPF) has warned.
During the IAPF's DC conference last week, the association highlighted its concerns about the proposed introduction of an auto-enrolment scheme that was outlined in the National Pensions Framework documents in March (See earlier IPE articles: Ireland follows UK path for pension reforms and Irish regulator may gain power over pension scheme investment).
IAPF chairman Marie Collins said: "Our research suggests that average employer contributions to DC schemes are currently 6%. The danger is that the mandatory employer contribution of 2% could become the norm.
"The total contribution (state, member and employer) of 8% as set out in the National Framework document will send the wrong message to DC savers who will need larger contributions to secure an adequate income in retirement."
Figures presented to conference delegates suggested that middle-income earners should save between 15-20% of their salary into a DC scheme to meet their retirement expectations.
David Harney, chief executive of corporate business at Irish Life, told the conference that DC schemes should include a default mechanism that would increase employee and employer contributions if a scheme were performing behind its target.
He warned: "Just because they make regular contributions, too many people have a false sense of security, complacency or lack of awareness on the actual value of their pension scheme and what it will buy in reality on retirement."
The IAPF also warned that, while DC schemes were slowly recouping losses from the 2008 market collapse, there was a danger that members of DC schemes were not sufficiently aware of how their retirement funds were being invested.
Collins said that as membership of DC schemes continued to grow, "scheme design, both in relation to contribution structure and investment strategy, must be fit to meet the needs of even the most non-interested DC member".
Collins also told delegates that the target of implementing auto-enrolment from 2014 "could be overly ambitious", pointing to the experience in the UK (where auto-enrolment is scheduled to commence from 2012) as evidence that a longer lead-in time was required to address complex issues that might arise in the planning stage.The department of finance has issued guidance on the application process for pension schemes that have suffered a 'double insolvency' event - where the employer and pension fund are both insolvent - to take advantage of the Pension Insolvency Payment Scheme (PIPS).
Trustees of eligible schemes will pay the government a lump sum to cover the cost of paying the pensions of retired members and in return the government will "take responsibility for the future payment of pensions to the beneficiaries covered by the scheme at the rate agreed by the minister in approving the application".
The guidance note sets out the three stages of the application process, including the documentation required by the Pensions Board to certify a scheme as eligible for the PIPS, as schemes will need to provide proof of company insolvency and that the pension fund is winding up in deficit.
The guidance also states the decision of the Pensions Board is final and there is no ability for appeal.
In addition, the department of finance confirmed that the cost of administering PIPs will be paid by participating schemes, with the charge included in the quote for transferring the liabilities, along with a "small charge to reflect the minister's fixed costs".
It also clarified that if trustees accept the quoted price for transferring pension liabilities, they would have to pay in cash. The note said the finance minister, on behalf of the government, "will not accept payment in the form of bonds, equities or other assets".
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