Startling gaps in report on pensions

Sir, – The report of the Interdepartmental Pensions Reform and Taxation Group, which contains strong recommendations for future policy on private sector pensions, follows on from a consultation process ("No access to retirement benefits from age 50 under new proposals", Business, November 18th).

But it shows startling gaps in public knowledge as to what is actually going on. The approved retirement fund (ARF) is the vehicle of choice for most people drawing down private sector defined contribution pensions. With regard to ARFs, the report is vague or uncertain on key issues.

The following are all quotations from the report: “There is limited data available on ARFs; “ . . . this information is not available in a consolidated fashion from the Office of the Revenue Commissioners”; “ . . . it is likely that the objective of maximising one’s tax-free lump sum, the perceived poor value of annuities and a bequest motive tip the balance of consumer decisions in favour of ARFs”; “. . . anecdotally, it is understood that individuals generally draw down an actual amount at least equal to the level of the imputed distribution”.

Unfortunately though, all this limited data, likelihood and anecdote did not stop the report’s authors from adopting “the view that the ARF should be replaced by a redesigned, whole-of-life, PRSA product”.


Fear of the “objective of maximising one’s tax-free lump sum” and of the “bequest motive” has been skewing Department of Finance thinking almost since the popular ARF system was introduced by minister for finance Charlie McCreevy 20 years ago. That fear is unfounded.

The figures in the report are uncertain (more uncertainty) but are the department’s best guess. Some 70,000 people hold a total of €15 billion in ARFs and approved (minimum) retirement funds (AMRFs).

For an ARF to deliver an imputed €40,000 per year, still less than the pension paid to a principal officer in the Civil Service, a fund of €1 million is needed. And if the average ARF is worth €215,000, there cannot be more than 5,000 or so ARFs delivering €40,000 per year. No pot of gold, here. And how the authors manage to impute a “bequest motive” to people getting a pension of €8,600 is perplexing.

The report acknowledges, in a perplexed sort of way, that “the perceived poor value of annuities” helps tip “the balance of consumer decisions in favour of ARFs”.

Here at least, the authors got it right. We, the private sector ARF-holders, perceive annuities as poor value. And given that the State requires a minimum 4 per cent yearly draw down, where the insurance companies offer a 3 per cent annuity rate, how could anybody perceive anything else? And given that insurance companies need to make a profit, why would they take the risks?

So why, therefore, does the report conclude, as you write, that “the ARF should be replaced by a redesigned, whole-of-life, PRSA product”?

To adopt this policy is to deliver the private sector pension saver into the hands of the insurance companies.

Does anybody seriously think that the insurance companies care more about the pensioners’ interests than about their own profits?

Part of the problem with the report is the limited research undertaken, concentrating on the UK, the US, Canada, Australia and New Zealand. Moving outside the Anglosphere provides other models. In Sweden, the state manages the defined contribution pension savings system on behalf of the citizen.

Pension policy is too important to be decided by people with neither experience of, nor personal stake in, what they are regulating.

The report’s authors should have done more than “consult”.

Let us not remake the ARF landscape, which potentially serves a million people in private sector employment, for the sake of the bequest motives of, potentially, five thousand. By all means, do something about reducing charges. There’s been talk of that for decades.

Keep the ARF system. It will be very difficult indeed to find something better.

Ignore what the Tories have been doing to British citizens’ pensions for the past 15 years.

If you must look elsewhere, find best welfare state practice in Europe. – Yours, etc,



Dublin 4.