The Green Paper describes the current pension provision approach in Ireland as ‘a tripartite arrangement between the state, employers and individuals’. It acknowledges the impact of economic and demographic trends on the pensions issue, and identifies pension adequacy, coverage and sustainability as key government policy challenges to be tackled in the years ahead.
There is a considerable degree of uncertainty associated with the projection of demographic trends in Ireland, in particular in relation to migration and fertility. However, it is safe to predict that the Irish population will age rapidly over the next fifty years, leading to a much higher proportion of retired people in the population, and putting the state pension system under considerable funding pressure.
The Green Paper asserts that the current state pension system ‘is not sustainable on the basis of current projections without adjustments to the overall policy mix’.
The Green Paper identifies a mismatch between the private pension expectations of Irish workers, and the reality of the provision being made by them, or on their behalf. Many workers expect private pensions to be their main source of income in retirement. However, unless there is a change in pension planning behaviour, this is unlikely to be feasible. Currently, many people are not covered by any supplementary pension arrangement, and of those who are, many are not saving enough to provide a satisfactory pension in retirement.
The Green Paper discusses some of the issues arising from the current approach to supporting private pension saving, and possible approaches to future development. Some parties have raised concerns about the equity of the current system, which grants generous tax relief at the marginal tax rate for pension contributions. There is also concern that the current restrictions on how the pension fund can be used act as a barrier to pension saving.
Four approaches to future pensions development are proposed for consideration:
- improve or re-target current incentives for voluntary pension savings
- introduce mandatory employer-sponsored pension provision for all employees
- introduce a ‘soft mandatory’ system, and
- enhance social welfare benefits, probably in tandem with an increase in the normal retirement age.
The Green Paper also deals with several technical pensions issues, and proposes a review of the fixed retirement age.
The Irish Life view
Irish Life’s view is that the best solution would take the form of a mix of various initiatives to tackle the knowledge and incentive gaps inherent in the current system:
- Simplify the pension tax relief regime and improve tax relief incentives for lower earners
- Allow employees to be automatically enrolled in employer pension schemes, with an opt-out on request
- Introduce government investment in financial education
- Allow limited access to pension savings in specific circumstances up to age 40
- Extend flexible retirement investment options (ARFs) to all
- Move from the concept of a fixed retirement date to a more flexible and phased form of gradual retirement.
The full Green Paper and an executive summary can be downloaded from the dedicated website: www.pensionsgreenpaper.ie. Interested parties can also make submissions in response to the questions raised in the Green Paper via this website.