The pension model should not be perfect, but we must act now

  • The pension model should not be perfect, but we must act now
    Independent.t. E.
    Pension model for Ireland is changing after several false starts, the changes that are long overdue. A sustainable pension system with possible relations of dependency requires workers to save more and retire later.
    https://www.independent.ie/business/personal-finance/pensions/pension-model-doesnt-have-to-be-perfect-but-we-must-act-now-37242284.html
    https://www.independent.ie/business/article37242283.ece/2410b/AUTOCROP/h342/2018-08-23_bus_43485979_I2.JPG

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Pension model for Ireland is changing after several false starts, the changes that are long overdue. A sustainable pension system with possible relations of dependency requires workers to save more and retire later.

We don’t get a perfect system overnight, so the one that is “good enough”, at least to start, is an important priority.

The main thing-to take the first step and immediately raise pensions, or risk further delays in reform.

That’s why the publication this week of a consultation document of the government on supplementary pension provision in Ireland has the potential to be such a landmark moment.

It is very important that we confront both hands and take decisive action to increase supplementary pension provision in this country.

Road map of the government on pension reform, published in February, outlined important steps to improve the financial security of the Irish people on pension, such as the development of the state pension age and the introduction of automatic registration.

Measures to improve the adequacy of the State pension can only be good news. However, only about amp; 35pc of Irish private sector workers enrolled in occupational pension schemes, we cannot rest on our laurels.

We’re not the only country facing a ticking time bomb when it comes to retirement is a global issue.

In starting off on the path of reform, we have the advantage of being able to follow in the footsteps of other countries that have gone before, replicating some of that work, and taking lessons from what is not.

Our closest neighbors have taken this route only a few years ago. More than 10 million British workers were enrolled in Washington’s plans since 2012, when employers were required to enrol employees in workplace pensions and the UK experience has shown that, once participants are automatically enrolled in a well-designed schema to drop the levels are extremely low less than 10.

Assessment of human behavior must be at the heart of pension policy and is key to the successful implementation of any scheme.

Successful automatic enrolment requires a well-designed investment strategy “by default” that people will not be inclined to refuse.

Waiting for ordinary citizens in making investment decisions that will impact their future financial security is a big issue and may not be approved.

People can struggle to choose the appropriate investments and research studies this year have shown us that only 32pc of Irish permanent members knew that their pensions were invested V.

Therefore, the default option, which is well diversified, good quality and suitable for life, to save the question so important.

We will have to face many difficult questions in the beginning of this journey: some of the proposed measures will be enough; whether there will be a contribution to be quite high; what is the approach we used to increase funding over time, there is a better default strategy, we could design?

We are not going to do it all right on the first try.

“Good enough” is one of the most important priorities. The “perfect” system cannot be created overnight, so it is important to take the first step and immediately raise pensions, or risk further delays in reform.

As we progress along the way, we can adjust and adapt as the system is installed.

Consider a country like Australia, which has one of the strongest of compulsory superannuation in the world.

There are levels of contribution now stand at 9.5 PC and is expected to increase to 12 pieces and in time they will probably want to go higher.

Similarly, the situation in the UK evolves as time passes. From April 2018 total minimum rate of contribution was 5pcs and this figure will increase to 8 in April 2019, with many commentators suggesting further growth after that.

Automatic enrollment is one of the measures proposed in the roadmap of the government on pension reform.

The road map comes at a time when the dependency ratio is increasing and new approaches to managing longevity risk and addressing deficits in pension provision is extremely important.

We all know that we need a sustainable pension system. Now is the time for action.

Ann Prendergast-the head of state Street global advisors Ireland

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