IRELAND – NEST-style default-enrolment pensions should replace tax breaks as incentives in building up Ireland's third pillar, according to a report from the Economic and Social Research Institute (ESRI).
The European Commission-backed report suggested NEST – the UK's automatic enrolment scheme – provided a "more efficient and more equitable" example for encouraging private pensions by keeping management charges low and introducing an inertia-defying default option.
Author Justin van de Ven of Melbourne University suggested Ireland introduce key features of the UK system including the requirement to impose employers' matching contribution and low management charges, both of which he claimed could offset "myopic" tendencies in employees reluctant to pay into pension schemes.
"More substantively, an important aspect of the design of the NEST is the allowance that is made for behavioural inertia through the adoption of an auto-enrolment mechanism," he said.
"This aspect of the scheme reflects extensive empirical evidence that default options for pensions – regarding the decision to participate, rates of contributions and investment strategies – tend to have an important bearing on outcomes in practice."
In a separate paper, researcher Gerard Hughes suggested that tax relief on employer and employee pension contributions and pension fund investments had been misplaced.
Based on stated government policy of creating a "level playing field" between employee and executive pensions, he recommended the earnings contribution be capped at €75,000 and the standard fund threshold at €622,500.
According to Hughes, the gradual replacement of defined benefit (DB) schemes with defined contribution schemes had affected non-executive employees significantly more than executive directors of listed companies, which tended to fund executive DB schemes generously and shoulder the risk of poor performance.
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