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Auto-enrolment will cause ‘massive hole’ in public finances - IAPF

26/10/2018 Posted by IAPF | Comments(0)

Ireland’s auto-enrolment plans and unfunded pensions liabilities could lead to financial issues, the Irish Association of Pension Funds (IAPF) said. 

The Department of Employment Affairs and Social Protection (DEA&SP) is currently reviewing tax relief on pensions and other incentives, which the pension association is questioning.

An Irish high-rate taxpayer currently gets 40 per cent tax relief on contributions, while the new proposal would lead to a 25 per cent relief, IAPF chief executive Jerry Moriarty said in a press release.

“On the other hand, someone paying no tax will be getting a contribution from the state. We will have to look how at how it impacts on the rest of the system,” he said.

This, as well as the state's unfunded pension liabilities, could according to the IAPF blow “a massive hole in the public finances in the coming decades”. 

The €20,000 income threshold and exclusion of the under-23s and over-60s means two-thirds of private sector workers will not be enrolled and will be reliant on a state-pension which will not be sufficient to keep them out of poverty, numbers from the Central Statistics Office (CSO) show.

CSO defines poverty as 60 per cent of median income, €23,800 in 2016, equivalent to €14,280 and well above the current maximum state pension payment. In addition, only 47 per cent of those in work were saving for retirement in the fourth quarter of 2015, down from 51 per cent in 2009.

The enrolment proposal favours persuasion to compulsion, modelled on UK’s successful auto-enrolment in 2012 where 10 million workers signed up and only 10 per cent opted out.

"A pension is something that doesn't just happen. For a lot of people it was something that they meant to do but never quite got around to", said Moriarty.

IAPF said the reduction in tax relief implied in the most recent set of proposals seems to provide evidence of a tug of war. 

Mercer’s head of member communications Danny Mansergh added: "You don't encourage people to contribute to pensions by cutting the support for those contributions.”

The proposal to automatically enrol workers into pension schemes by 2022 was announced last month by Social Protection Minister Regina Doherty. 

Workers aged between 23 and 60, earning more than €20,000 a year and not already in a pension scheme would be automatically enrolled in DC schemes.

Employees would start with contributing 1 per cent, rising to 6 per cent by the sixth year and matched by employers. The government has in addition proposed contributing €1 for every €3 contributed by the employee which would bring the total pension contribution to 14 per cent by year six.

Written by Sunniva Kolostyak

Original article here

 

 

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