Defined contributions
He said the trend over recent years to move people from final salary or defined benefit arrangements to defined contribution schemes had placed a lot of responsibility on individuals. “So it is important that they can easily understand the decisions that they need to make,” he said.
Alistair Byrne, head of European DC investment strategy at State Street Global Advisors, said the Roadmap to Pensions Reform contained “important measure to improve the financial security of Irish people in retirement”.
He was particularly enthusiastic about auto-enrolment. “We can expect take up rates of 80 to 90 per cent, based on international experience, while allowing people for whom saving is not currently appropriate to opt out. This is preferable to compulsion,” he said.
He argued that, for easy implementation by employers, workers of all ages and pay levels should be included “rather than requiring complex and costly filtering of eligible employees”.
Road map
While the auto-enrolment plan has yet to go to public consultation, the Government appears to favour a scheme that would only kick in at certain pay levels and above a certain age.
State Street also supports the plan to automatically increase contributions over time to allow workers, and employers, get used to the new scheme.
“In the end state, total contributions will need to be somewhere above 10 per cent, but not so high as to drive people to opt out,” Mr Byrne said.
An illustration in the published road map document suggests an eventual contribution level of around 14 per cent of salary – 2 per cent from the State and the remaining 12 per cent split evenly between worker and employer.
Mairéad O’Mahony of benefits consultant Mercer also welcomed the report. “In particular, the stated intention of introducing an auto-enrolment regime from 2022 is a crucial development to ensure we address the inadequacy of private pension savings, with less than 50 per cent of private sector workers currently saving for retirement,” she said.
“The timelines set down are ambitious but achievable.”