IRELAND - The Green Paper consultation process outlined last year concerning pension reforms has revealed a "general lack of consensus" over the next steps regarding pensions, according to a government report.

Mary Hanafin TD, the minister for social and family affairs, has published the 'Report on the Consultation Process for the Green Paper on Pensions', which summarises more than 380 responses and 1200 pages to the original consultation as well as the proceedings at both a major conference and regional seminars.

However the findings of the report, compiled by Mel Cousins and Associates consultancy firm, revealed a wide range of views on the type of pension model to be adopted, including support for a universal state system, the existing state pension with a mandatory second tier and an improved state pension but with a soft-compulsory approach to supplementary savings through auto-enrolment.

In addition, although the majority of respondents recognised a need to react to increasing longevity, such as phased-in retirement and increased benefits for those who work past the existing state retirement age of 65, there appears to be little support for an increase in the retirement age.

That said, the Society of Actuaries was quoted in the report as suggesting a retirement age of 70 by 2050, which would help fund an increase in pension levels and allow defined benefit (DB) schemes to increase retirement ages.

It suggested this should have a lead-in period of 15 years, but noted the OECD Economic Survey had recommended indexing the state pension age to longevity which would require an increase of one year per decade.

The report meanwhile noted a group of Watson Wyatt clients had suggested the increase in state pension age could be achieved more quickly by immediately increasing the retirement age to 70 with a state pension of 50% of average industrial earnings (AIE) after this age.

However this submission suggested allowing retirement from age 65 at the current level of state pension of 34% of AIE, with stepped increases up to 50% at age 70, and over time the early retirement option should be gradually withdrawn and restricted.

The report also highlighted views on the pensions model for personal and occupational pension schemes was also varied, with pension industry bodies generally opposing a fully mandatory approach.

For example, the Irish Insurance Federation (IIF) suggested through the consulation mandatory pensions would involve a high degree of complexity and would remove personal choice, although if additional measures are needed  so it supports auto-enrolment, as this would preserve personal responsibility while harnessing natural inertia.

The mandatory approach is also opposed by the Irish Association of Pension Funds (IAPF), the Pensions Ombudsman, life insurance companies and a number of other organisation, with only the Services, Industrial, Professional and Technical Union (SIPTU) arguing only mandatory schemes work.

The report revealed despite a "very large number of submissions" concerned with tax issues on pensions, there was "little consensus on the impact of existing reliefs nor on the future direction of policy".

For example one group of submissions argued for the abolition of tax reliefs that mainly benefit higher earners, while others claim they play an important role in encouraging saving and should be retained and possibly increased - although there is a further split about whether the existing system should be maintained or if there should be a shift towards tax credits.

The issue of annuities and Approved Retirement Funds (ARFs) also provoked diverse views on whether annuities are value for money, and whether ARFs should be extended to those in defined contribution (DC) schemes.

However the report noted there was general support from respondents that the state should have some role in providing annuities, although the details again lacked consensus with some submissions suggesting a very broad role, and others a narrowly confined one, although in contrast the Pensions Ombudsman suggested the government should not get involved in the annuity market but instead should make it "less onerous' for EU companies to enter the Irish market.

The funding standard and security of pensions also produced differing views as some respondents favoured the retention of the existing approach and the establishment of pensions protection along the lines of the UK's Pension Protection Fund (PPF), while others suggested a modification of the existing funding standard - particularly for larger DB schemes, but rejected the protection scheme as being ineffective in an Irish context.

Other proposals include the establishment by the state of a national reserve fund in case of shortfalls in occupational pensions, similar to the US government agency the Pension Benefit Guaranty Corporation (PBGC), while other suggest the government should legislate to force occupational and personal pension providers to establish their own reserves. 

Hanafin said: "While it is clear from the report there is very little consensus on the future direction that Ireland's pension policy will take, the report summarises some of the key areas that are of concern to people.

"We must now make decisions on where we see our pensions policy heading. That is why, even in the current challenging economic environment, the government remains committed to producing a long-term pensions framework by the end of this year. In doing so, we will need to strike a difficult balance between fairness, adequacy and sustainability," she added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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