Call for pensions to be made mandatory by 2019

Ireland should make pensions mandatory by 2019, in order to improve pension coverage and the adequacy of pensions.

The Society of Actuaries in Ireland (SAI) this morning recommended to Government that a mandatory pension system should be developed over the next five years for all workers as the best way of increasing private pensions coverage and improving the adequacy of pensions for individuals in Ireland.

Last year, in its review of the Irish pension regime, the OECD said that auto-enrolment, whereby individuals are automatically enrolled into a pension scheme, but have the option of also opting out, should be introduced, The government agrees with this approach, and has suggested that it could be introduced when the economic climate is appropriate.

However, while the SAI “is conscious that, in Ireland, auto-enrolment may appear more palatable than a mandatory system in the current economic environment”, it asserts that a mandatory system is superior to an auto-enrolment regime.

The society argues that a mandatory regime is more effective at increasing private pensions coverage than auto-enrolment, as demonstrated by international experience and that it should be easier to run than an auto-enrolment regime, since opt-out and opt-in issues will not arise.

While it accepts that some international auto-enrolment schemes have been successful, such as the KiwiSaver scheme in New Zealand, it notes that these have used financial incentives from the State, “which is unlikely to be viable in Ireland, in the near-term”.

In addition, the society suggests that establishing the more complex system of auto-enrolment and subsequently introducing the mandatory regime could potentially be a waste of resources.

Some elements of the society’s proposed new mandatory scheme include: the introduction of individual accounts to increase transparency; a system based on matching contributions rather than tax relief at the marginal rate; and a system where access to funds is not an option or only allowable to a limited amount with tight rules involving a large burden of proof.