Not enough of us are saving or not saving enough, says Irish Association of Pension Funds’ Jerry Moriarty
The headlines are a distraction. “Cabinet pensions worth €36m”; “Pension entitlements more valuable than salaries for ministers of state”; Company chiefs get pensions five times higher than their workers.”
Jerry Moriarty argues the recent focus on massive pensions for a perceived golden circle do little to reflect the reality.
“What you lose in those headlines is that the biggest problem we have is that you don’t have enough people saving and, of those who are saving, most of them aren’t saving enough,” says Moriarty, chief executive of the Irish Association of Pension Funds (IAPF). “That’s going to cause problems 20 or 30 years down the line when people will not be able to retire or they will be forced to retire and will not be able to afford the sort of life they wish to.”
Moriarty sits at a modest boardroom table in the basement of the offices of the IAPF, the industry body representing the interests of 270,000 members of occupational pension schemes – either working or retired.
The offices are conveniently situated close to Dublin’s city centre, across the road from a Revenue office and just a stone’s throw from the Pensions Board, the body that regulates the pension sector in Ireland. A couple of doors away, an estate agent’s sign hails “magnificent Georgian and contemporary” accommodation in properties restored to earlier glories but the IAPF offices themselves are far from gilded, located down a warren of corridors in one of the more humble dwellings on the street.
“It’s about people at the end of the day,” he says. “You can get very caught up in modelling and tax relief, and all sorts of issues but it really is about making sure people have adequate retirement and the sort of retirement they aspire to.”
It’s a turbulent time in the pensions business. The guarantee generations of people thought they had with defined benefit, or final salary, pension schemes turned out to be a promise, a very conditional promise. And with the vast majority of DB schemes “under water” – where their assets will not suffice to pay their obligations if wound up, it looks increasingly as though traditional pension provision is dead, at least in the private sector.
“It’s certainly dying,” agrees Moriarty, “and I don’t see much coming down the tracks that is trying to prevent that. Some of the more recent regulations are kind of like the final kick, such as introducing risk reserving, where schemes already underfunded now have to put more assets in. For many people, that’s just the final straw.”
It’s not just an Irish problem, he says, but a global trend. He points out that there is not a FTSE200 company with an open DB scheme. “They are closed to new entrants and most are closed to future accrual,” he says.
That’s not all bad, he argues. DB schemes were designed in a time when workers stayed with one employer for life.
“I saw something during the week that most people entering the workforce now have seven to 10 jobs [over a working lifetime], so having something that is a bit more fluid and a bit more portable that you can transfer around with you does make sense, and DC does that.
DC is a defined contribution scheme, where the pension is determined by the amount contributed and the investment performance; there is no guarantee, or promise.
“There is this thing that DB is great, gold-plated, a Rolls Royce [of the industry] and DC is terrible,” Moriarty says. “The truth is a lot more in the middle. For a lot of people in underfunded DB schemes at the moment, they would have a lot better security in a DC plan because they have their own account that cannot be used to pay other people’s benefit.”
One of the recurring issues with the newer models of pensions is adequacy. Put simply, people are not putting nearly enough aside to meet their own expectations of pension in retirement.
“The benefits that come of saving earlier are massive – in terms of power of compounding. If you are getting investment returns on money you have been getting investment return on for many years, that makes a difference.”
Sympathy
But Moriarty has some sympathy. People in their 20s, 30s and even early 40s have myriad competing demands on their financial resources, getting and paying a mortgage, having and raising a family.
He feels strongly there is a need to tailor its message better. “The pensions industry is guilty of making pensions extremely complicated. A lot of people switch off immediately. So you have to find a way of scaling that back and getting the basics across to people ,” he says.
“We also have to stop scaring people. This idea that you need to be saving 20 per cent of your salary or, otherwise, you are going to be in poverty in retirement. I think most people say: ‘Well, I can’t afford to save 20 per cent, so I’m not going to do anything.’
“The reality for most people, particularly where you have an occupational scheme, is that you’re not the only one saving: the employer is putting something in, the government is putting something in. So the reality is for most people, if you are starting very early, a contribution of 5 per cent [of salary] can get you a lot.”
He says the message that should be going out is that you’re better doing something than doing nothing. “Unfortunately, I think most people just take the option of doing nothing.”
Moriarty started as a humble clerk. Just six months into a college business degree in 1988, he accepted an offer from Irish Life. “It was at a time when if you did your four-year degree, that’s what you were hoping to get anyway,” he recalls.
Getting into pensions was no more than a matter of chance. “I don’t think there was anything scientific about it,” he says. “Four of us turned up on the morning in question and one was sent to insurance, one to pensions and so on.
After five years in Dublin, he moved over to the UK where his abiding memory is of his involvement in a review into a pension mis-selling scandal. More than a million people were found to have been erroneously advised to take out personal pension plans by the industry when they would have been better off in a company scheme.
The experience persuaded him to get involved on the regulatory side of the business and he returned to Dublin to join the Pensions Board, which oversees pensions in Ireland. Five years ago, he moved to the IAPF where, in May, he was appointed chief executive. Most recently, he has joined the board of Pensions Europe, an umbrella group, where he has been asked to chair a new committee on issues affecting defined contribution pension schemes.
He concedes that part of the issue is that there is a lot of distrust with anything to do with financial services at the moment.
Fees and charges
Then there is the issue of fees and charges levied on pensions savings by those managing the funds. A recent report from the Department of Social Protection noted that, in some cases, almost a third of an individual’s pension fund can de dissipated in charges, many of them opaque or simply not disclosed at all to the customer.
“It’s clear from the report that more needs to be done on transparency and value for money,” Moriarty acknowledges. He is confident from his reading of the full report that larger occupational schemes appear to be working alright. “Where there is a bigger issue is on the individual side.”
In mitigation of the industry, he notes, that, all too often, a pension purchase is a last minute rush by a person filing a return at the end of the tax year with little time to shop around. Still, he agrees that some of the figures quoted in the department report were “eye watering”.
One solution, he proposes, is to scale up pension schemes to help individual members avail of the benefits of group purchasing power on fees and charges. Such provisions are in place in other countries, notably the Netherlands and Australia, where there is a scheme for nurses and another for teachers, for instance.
That brings us back to Government policy. There has, as Moriarty notes, been no shortage of reports on the Irish pension system. “What we have been short on is implementing the recommendations and taking the actions. There is a sense that there are a lot of things we could have done in a more benign environment [of the boom years] but we have missed that.”
He argues strongly that guidelines issued last summer contained things that were more likely to be detrimental to pension saving and that the things that could have helped weren’t there.
But allowing trustees reduce benefits has been helpful, as has the putting in place of longer funding plans, “but you always have this conflict between the [Department of] Social Protection side and the [Department of] Finance side. The Social Protection side would be very much on adequacy and looking to the future but I think there is a view in Finance in recent years that there is a big pot of money there and we need to get our hands on some of it.”
Not all of it is negative. He has little problem with standard fund thresholds, arguing that people needed to get back to discussing pensions in terms of retirement planning and not about wealth management. “There were clearly situations that were a lot more about wealth management,” he says, citing a particularly egregious example that is reported to have triggered the introduction of the threshold. “So it is right and proper that abuses are cut out and that we allow a reasonable amount of income at retirement to be built up.” That necessarily involves incentives, Moriarty says. “People are just not going to put money away for the long term unless they are getting something for it and that it is attractive in some way.”
Security is also important and the introduction of the pension levy by the Government is seen as particularly damaging to confidence.
“Trustees have been reluctant to grasp the issue of how you apply the levy but you are going to see benefits being cut and pensions being cut, and then I think you are going to see more of a backlash than we have to date,” he says.
The levy – 0.6 per cent per annum on the value of a private pension fund – is supposed to last four years but Moriarty questions whether the Government “can really turn off €500 million a year in funding” in two years. If not, will it stay at 0.6 per cent or will it become more? He is wary of the “almost push through regulation” or provision of lots of encouragement for trustees to invest in sovereign bonds.
“I have heard a lot from Government, especially when the levy came in, about how pensions don’t invest a lot in Ireland,” says Moriarty. “Well, if they had invested in Ireland in the last 10 years, they would have lost a lot more than they have.
“So the power of diversification, spreading your assets and spreading your risk is hugely important. For trustees, it’s not just a case of saying this is good for Ireland, you have to look at what is good for your scheme and your members.”
Pensions will continue to be under close scrutiny, with the troika pushing for savings. The National Programme for Recovery said €940 million in savings would be sought from the sector.
“There has been a fair bit done in the past two budgets and there have also been savings because contributions have dropped. “There is probably over €500 million done to date, so there is €400 million-plus to do.”
The upcoming budget could deliver further savings of about €380 million, with the industry plumbing for the Government proposal to limit relief to pensions worth €60,000 a year as “the least worst” option. Whatever happens, “the whole issue, the important issue, about pensions is trying to ensure that people have a reasonable standard of living in retirement”, Moriarty concludes.
CV Jerry Moriarty
Name: Jerry Moriarty
Position: chief executive of the Irish Association of Pension Funds, which represents occupational pension funds in Ireland
Age: 42 today
Family: Married
Interests outside work: Loves to travel and go trekking. Has just taken up cycling.
Something you might expect: He cites his involvement in the review of pension mis-selling the UK as a key moment in his career.
Something that might surprise: Pension funds may strive not to find themselves "under water", but Moriarty has a fondness for scuba diving
