Mandatory system required to deal with ‘pensions time-bomb’

A mandatory defined contribution pension system for all workers would require employer contributions but would have to take into account the exceptionally high proportion of small businesses in the Irish economy, according to a report published today.

Ireland’s public debt of €192 billion pales into insignificance when compared to the €440 billion “hidden” state liability for public servant pensions and the shortfall in the Social Insurance Fund, the report said.

The time is now right to fix a framework for future-proofing Ireland against the “demographic time-bomb” that confronts it, according to Insurance Ireland, the body that represents the Irish insurance sector.

The body released the report, A Universal Pension for Ireland, today, ahead of a workshop in Dublin that is to be attended by the Tanaiste and Minister for Social Protection, Joan Burton.

The report notes that the Organisation for Economic Cooperation and Development had recommended a mandatory defined contribution workplace pension system and said making it mandatory would be a less expensive system for the State to implement.

If mandation is not chosen, then ambitious goals for auto-enrolment, with voluntary opt-out, would have to be set, as there would be little point in introducing change that did not make a difference.

Auto-enrolment could be considered a success if it achieved 90 per cent coverage of the workforce. If 70 per cent could not be achieved within five years, then mandation would have to be re-considered, the report said.

It also said that Ireland already has a well-developed defined contribution infrastructure and that it did not make economic sense for the Government to go to the expense of building a new pension architecture.

“Insurance Ireland is aware of the need for low charges and competition is likely to be the best route to drive down fees. It should be open to all potential providers (whether insurance based or not) to enter the market.”

Speaking at the launch of the report Kevin Thompson, chief executive of Insurance Ireland, said its members had the capacity and experience to deliver a universal pension solution to the State at lost cost and at low risk.

“We are committed to collaborating with Government in delivering the right universal pension solution for Ireland,” he said.