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Experts warn of impact of low interest rates on cost of pensions

28/03/2015 Posted by IAPF

IAPF calls for leadership in taking the decisions necessary to secure pensions over the long-term

Ireland’s key pension savers’ representative body, the IAPF, has called on the Government to be clear on the objective of the proposed Universal Retirement Savings and to fully consider all the options available, while also warning of the significant impact low interest rates are having on the cost of pensions.

Speaking to over 600 IAPF members and pensions experts at last night’s IAPF annual dinner, Rachael Ingle, Chairperson of the IAPF, “Low interest rates increase the cost of pensions, which in turn increase the liabilities of Defined Benefit pension schemes and reduce the amount of pension Defined Contribution members will receive. It is paramount that regulation introduced by the Government does not to lose sight of the ability to pay pensions over the long-term”.

Speakers at last night’s event included Brian Hayes MEP, who was recently appointed rapporteur by the European People's Party for an EU Directive on occupational pension funds (IORPs). Mr. Hayes will negotiate the Directive on behalf of the European Parliament and will progress the Directive through the Economic and Monetary Affairs Committee in the coming months.

The predominant theme running through the speech given by Rachael Ingle was the absolute need to ensure that people in Ireland will have secure, fair and simple pensions.

Rachael commented, “In the last few years, the Irish pension landscape has been in somewhat of a limbo like state. People have been left waiting to see whether or not the Government would leave tax reliefs intact, whether or not they would increase, decrease or remove the levy on pension savings, and whether or not they would tinker with the State Pension based on short-term monitory considerations. The setting up of the Pensions Council and a Universal Retirement Savings Group was a welcome indication that there will be greater focus on the long-term planning that is required. It is important that those bodies set out clear objectives and consider all options available and tap into the experience overseas and also of those running pension schemes in Ireland”.

With the State Pension currently running an annual deficit of €1.5bn, which is estimated to be (in today’s terms) €324bn by 2061, the IAPF say that the sustainability of the State Pension has to be underpinned with a clear funding plan.

Rachael continued, “There has been an approximate 50% increase in the weekly rates of the State Pension over the last 10 years which now delivers a reasonable but modest income for all those dependent on it, although there have been no increases since 2008.

Last year, the State Pension bill was €5.1 billion which equates to 25% of total expenditure on social protection schemes and services, and this liability is expected to increase by €200million each year to €7.5billion in 10 years’ time. The Government needs to show leadership and be clear about the plan of action to address this issue.  Providing a basic, but sustainable State Pension for all citizens will cost considerably more in the future so we need to ensure that the taxpayers who will foot the bill and the people who are relying on this income in retirement can be sure it will be delivered.”

Trust and Leadership 
Rachael concluded, “We need trust in the system – not just that charges and expenses are fair and reasonable, but also that they will not be raided by future governments and that future generations will not be taxed disproportionately. As we are facing a transition of risk to members, a retreating role of the Government and a sober social security program, it begs the question of what the world of pensions will look like with the new roles and responsibilities being faced by individuals, employers, trustees and any other stakeholders involved in our future financial wellness. 
Making long-term decisions in an uncertain environment with many moving parts requires significant experience, leadership, discipline and crucially, a vision of the future possibilities.”

Editors Notes

The IAPF’s Annual Dinner took place last night in the Double Tree hotel in Dublin and brought together over 600 IAPF members and pensions experts from around the country.

About the IAPF 

Established in 1973, the Irish Association of Pension Funds (IAPF) is a non- profit, non-commercial organisation whose aim is to promote financial security for all retired people. Impact on pension provision

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