Ireland’s pension landscape is facing unprecedented change with many pension schemes struggling to keep pace with change.
That’s the main message from a new survey by Ireland’s leading professional services firm Aon which provides insights into the changing nature of defined contribution pension schemes in Ireland. The survey also shows that the speed and extent of the transformation being witnessed is impacting upon every trustee board and employer.
From new regulatory requirements to economic challenges, an aging population and the evolution of a multi-generational workforce, defined contribution (DC) pension schemes are becoming increasingly complex to manage.
Six in 10 pension schemes are currently not prepared for the planned introducion of auto-enrolment
The survey of employers and trustees from 120 DC schemes in Ireland, representing over 117,000 employees and in excess of €4.75 billion of assets, has revealed that employers in Ireland appear to be taking a “wait and see” approach to pending legislative changes.
Rachael Ingle, CEO, Aon Solutions Ireland reflected on the findings and says: “The survey findings give real cause for concern. There are a number of issues emerging which, if not addressed, could become very problematic in the years ahead."
“For example, our Defined Contribution Survey has found that six in 10 pension schemes are currently not prepared for the planned introducion of auto-enrolment which will see all private sector workers automatically being included in a pension scheme.”
To address this issue, Aon is calling on employers and trustees to work together to plan for auto-enrolment. With current Government plans to introduce the new system in 2022, there is little time to prepare.
It also continues to surprise that one in four employees who are eligible for membership of their company's defined contribution pension scheme have not joined. The survey also identifies a trend towards matching contributions with almost 50 per cent of all defined contribution pension schemes applying a contribution structure which provides for a higher employer contribution if the employee also agrees to pay more. However, in addition to the one in four who are not yet members of their company defined contribution pension scheme, many members are not paying the maximum employee contribution and as a result, both groups are leaving free money from their employer on the table.
Ingle continued: “It is worrying to find that 25 per cent of people who are eligible for membership of their company's pension scheme have not joined. This can only mean that they do not understand the potential consequences of failing to plan for their longer-term financial wellbeing. Ireland is fortunate in that we have a young but aging population which means there is still time to address the accelerating pension timebomb, but only if we act quickly.”
Governance and compliance issues remain a challenge for the sector in Ireland with ever increasing regulatory costs associated with, for instance, the General Data Protection Regulation (GDPR), ECB reporting requirements and the upcoming IORP II Pensions Directive. With a greater focus on governance and monitoring, it is heartening to see that there has been a significant increase in the number of trustee boards measuring their performance – currently 73 per cent, up from 53 per cent in 2016.
It is critical for employers, trustees and employees to take action now in order to plan for the future
Aon’s survey points towards significant structural changes to Ireland’s pension landscape with 44 per cent of all defined contribution pension schemes trustees now delegating the investment of assets to professional providers. Additionally, following a global trend, employers are increasingly considering delegating complete responsibility for the management of their defined contribution pension schemes to “master trusts”.
The survey found that 88 per cent of schemes surveyed still have a normal retirement age of 65. This is despite the state pension age being 66 and current Government plans to increase it to 68 by 2028.
Ingle added: “As the Covid-19 pandemic evolves, and its implications on savings and investments becomes clear, it will become increasingly important for pension schemes to find ways to provide robust governance structures that deliver results, while connecting more effectively with employees to ensure financial wellbeing in older age is achieved. From encouraging members to maximise both their own and their employer’s contributions, to educating them about investment and retirement considerations, it is critical for employers, trustees and employees to take action now in order to plan for the future.
“Aon is committed to working closely with employers and trustees to identify and implement pension solutions that ultimately aim to deliver better outcomes for members in a volatile and rapidly changing environment.”
[ https://www.aon.com/ireland/retirement-investment/dc-survey.jspOpens in new window ]