The uncertain future of pensions
“What happened was that employers deferred salary increases.
“But as we came out of it [the recession], they became accepting of the policy,” he says.
Key perhaps to the success of the Australian model is that it took a hard-line approach, with few provisions, such as a hardship clause or allowing people to opt out.
In New Zealand, however, employees can opt out of a scheme within eight weeks of starting a job, while the UK’s new scheme also allows people to defer joining a pension scheme.
For Harris, this can negate the benefits of auto-enrolment.
“The challenge with auto-enrolment on a soft compulsory level is that it allows people to opt out,” he says, adding that New Zealand has an opt-out rate of about 30 per cent.
It’s also cheaper to require people to join a scheme.
“On the whole, compulsion or ‘mandation’ like Australia is much cheaper to implement,” he says, adding that there are fewer compliance costs.
From Ireland’s perspective, the question also arises of who will collect and who will manage the funds if auto-enrolment is introduced.
Minister for Social Protection Joan Burton has indicated the Revenue Commissioners will collect the funds, via PRSI payments, and the National Treasury Management Agency (NTMA) will be responsible for managing it.
But given that the National Pension Reserve Fund, which is also managed by the NTMA, has already been raided to pay for the banks, there might be some concern from pension fund holders about locking away their funds with a Government agency.
Early access: How do I get my funds ahead of schedule?
In December’s budget, Minister for Finance Michael Noonan appeared to give in to industry and consumer pressure when he introduced a measure allowing people to access some of their pension funds ahead of schedule.
However, while Linda Gallagher, joint managing director of broker First Ireland Risk Management, is having “lots of queries” about the new measure, none of them are going anywhere.
“It was a total waste of time,” she says, adding, “it doesn’t apply to much of the population because it doesn’t apply to SME or business owners. It’s based on additional voluntary contributions (AVCs), so it’s restricted to members of group pension schemes who can barely afford to pay compulsory pensions, let alone be paying AVCs.
“The people who require it are the entrepreneurial cohort of people,” she says, citing the example of a recent inquiry from a client who had secured funding from Enterprise Ireland to set up a business. The investment agency wanted him to invest a certain amount also and the only funds he had were tied up in a pension fund, which he could not access.
Gallagher notes she is still lobbying the Government on behalf of the Irish Brokers’ Association, and is “hopeful” the scheme might be broadened. If it was, it might even encourage other people to save for retirement, as they could so in the knowledge that if they ran into financial difficulties, their funds could be accessed.
As Gallagher notes, allowing access to some of your pension funds early, as is possible in other countries, can change the “mindset” around pension planning.
“Logic and human behaviour would tell you that there would be a lot more interest if it was allowed. There’s no question but that it would make them [pensions] more attractive,” she adds.