Raising the state pension
The Green Paper also covers the social welfare system."The government's commitment to increase the social welfare pension from €223 per week to €300 per week means the first pillar state pension is set to rise to a good level for everyone," says chief executive of corporate business at Irish Life David Harney. "It is easiest to have a good first pillar and an attractive voluntary scheme on top of that. However, a better first pillar will cost money and that will eventually have to come from higher taxes."
But Paul Victory, a consultant at Watson Wyatt in Dublin, adds a word of caution in relation to state pension increases. "Whether the government will be in a position to increase the first pillar pension to €300 per week over the current period will depend on the economy. If we continue to have strong economic growth there may still be scope to do that but if we head for an economic downturn the actual ability to live up to that aspiration is questionable. A 34% increase over five years may not even amount to very much if inflation is at 5-6%. However, if inflation returns to more modest levels, increases in the state pension would hasten the point at which we run into difficulties with the sustainability of the state pension."
"The first pillar can provide a good, basic pension and take care of the coverage rate," says Michael Leahy, chief executive of Standard Life in Ireland. "But even a 5-10% of salary contribution to an SSIA style pension would not be enough to provide future retirees with a standard of living similar to that they currently enjoy. Therefore, it should also fall to the first pillar to solve adequacy up to a minimum level. And this can be made possible by taking advantages of today's demographics and introducing pre-funding."
"Any increase in the state pension needs to be sustainable in cost. But both pillar pensions can exist side by side and be very complementary: pillar one's aim is to keep people out of poverty, while pillar two helps to keep up the standard of living," says Jerry Moriarty, director of policy at the Irish Association of Pension Funds (IAPF).
Another major topic is options at retirement, notes Victory. While the self-employed, proprietary directors or individuals with PRSAs can carry on their investment in ARFs, this option does not apply to workers with DC pension arrangements who have to buy a low-risk/low-return annuity.
The IAPF has already submitted a proposal on the matter as part of the Green Paper consultation phase. And Harney says Irish Life would also be pushing for an extension of approved retirement funds (ARFs), where pension holders are allowed to invest in a managed fund rather than having to buy annuity on retirement, to DC scheme members.
"We will advocate the current system with a number of improvements as the first option. If that does not work, then consideration could be given to a type of mandatory pension," says Moriarty.
Kennedy says the Pensions Board's 17 members hold a variety of views. "But there does not need to be consensus, which may not be possible, only acceptance that the different views have been taken into account in the decision process," he says, adding that pensions will be costly in whatever way they are provided. He also says the Pensions Board will continue its pensions awareness campaign, to which the government recently renewed its €1m grant.
"The consultation process is definitely a step in the right direction and we hope there will be enough of a common thread in it to keep things moving forward," Victory adds.