The impact of immigration
For the past decade Ireland, long seen as a country from which people emigrated, has witnessed a strong influx of immigrants, particularly from eastern Europe.
But this phenomenon is still too recent to be able to lead to any conclusions of its impact on the pensions industry.
"A lot of immigrants have come to Ireland without having made up their mind about whether they want to settle here long-term," says Paul Victory, a consultant at Dublin's Watson Wyatt office. "The main impact on the pensions industry is that it has slowed the expansion of the pension coverage rate in the second pillar, particularly as immigrants tend to work in low coverage sectors such as hospitality and catering. And because some may not plan to settle permanently, pensions are often not a pressing issue for them."
Victory adds that the Irish tax authorities want to facilitate portability of second pillar pensions. "But they cannot allow a total free-for-all pensions transfer because the government's pension tax breaks are used to facilitate long-term retirement income, not short-term savings. A reduction of the vesting period by the Pensions Board in 2002 from five to two years has not been universally welcomed by immigrants, because it means that after only two years their money is locked away and inaccessible to them until retirement."
"There is no evidence yet whether, with a slowdown in the housing side of the construction industry, immigrant workers will move into other areas or return home," says Patrick Ferguson, CEO and pension fund secretary at the Construction Workers Pension Scheme of Ireland.
However, David Harney, chief executive of corporate business at Irish Life, reports a lot more enquiries about the pensions options of immigrant workers and transfers into approved pension arrangements in their countries of origin.
"We are prepared to make transfers for any employees returning to their home countries because our cash-based scheme is fully transferable," says Ferguson. "We can transfer the scheme value to any country with a suitable vehicle. In countries where pensions are still underdeveloped there may not be any suitable vehicles as of now, but the pension is not paid out until they are 65 so a lot can change over that period. Currently around 10% of our members are non-nationals and this does not present any specific problems other than a need to keep their contact details when they leave the scheme."
But it is not always so simple. "The transfer of benefits can be difficult," says Jerry Moriarty, director of policy at the Irish Association of Pension Funds (IAPF). "Currently, for example, there are no means of transferring benefits to Poland. And although transfers will get easier with EU accession, they often still present difficulties, even in the EU. From a practical point of view it could cause a lot of difficulties for schemes to trace members who worked here for a number of years and then moved back home. There have been suggestions, particularly by the pensions ombudsman, that when people leave Ireland for good they should be allowed to take cash rather than having to wait for their rather small benefits, because this may mean more than a pension at 65, particularly in countries with a low life expectancy."
Moriarty calls for more research on immigrants and pensions. But he believes that their coverage rate falls in line with the coverage in their field of work, in other words an above-average coverage in financial services and a below-average coverage rate in sectors such as catering.