There seem to be two Irelands when it comes to pensions. The first is the dynamic financial centre that is looking to become a pensions hub for Europe once the occupational pension fund directive kicks in. The second by contrast is a country that is wrestling with its very own pensions crisis.
Officials have been promoting the idea of Ireland becoming the “domicile of choice” when the IORP directive is implemented.
“Ireland has a solid base of established pension providers and regulators serving the domestic market which provide an excellent foundation on which to build our pan-European service,” says Social Affairs Minister Séamus Brennan.
Although Ireland’s pensions system is largely trust based, Brennan has stated his intention to “fully engage” with interested parties to find out if there are other suitable pension arrangements which Ireland can provide to people considering pan-European schemes.
“If Ireland is to become an EU hub for such commercial activity, pragmatic and flexible implementation of the IORP directive will be a key factor,” he says. “In other words, for Ireland to be regarded as a leader in this area, it will be necessary to provide the right regulatory and tax environment in order to fully capitalise on the opportunities as they emerge.”
In addition Ireland is in a contest with Luxembourg over who will be Europe’s asset pooling domicile, with the Irish Common Contractual Fund going up against its rival’s Funds Commun de Placement. At issue are potentially billions of euros.
While all this is going on - and it may well receive a boost from UK schemes seeking to avoid having to pay the PPF levy - the domestic industry is something of a crisis, with the Irish Association of Pension Funds regularly issuing pleas about the situation.
The IMF said in a recent report that Ireland may need to re-examine its retirement programmes. It said: “The rational for the pre-retirement allowance and retirement pension programs may need to be re-examined as these programs discourage labour participation by elderly workers.”
And it highlighted concerns about the future living standards for retirees. It said this was due to the fact that Irish state pension replacement rates are among the lowest in industrial countries. Coupled to this is the low level of private pension coverage.
All this is amid the context of the National Pension Awareness Campaign and National Pensions Review. But the IMF reckons the review “could also be used to intensify the debate on retirement and pensions in Ireland”.
Among the issues facing practitioners are deficits at defined benefit schemes, an uncertain demographic outlook and low annuity rates. Added to this is the only partially successful launch of the new Personal Retirement Savings Accounts. And then there’s the standoff over the question of mandatory retirement.
IAPF chairman Joe Byrne says the government has the capacity to defuse Ireland’s pensions crisis firstly by eliminating regulatory barriers to defined benefit schemes and secondly by incentivising contributions to defined contribution schemes.
“The pensions time bomb in Ireland differs somewhat to that in the rest of Europe,” he adds. “Unlike many of our European neighbours, Ireland can better afford to continue to fund a state pension at current levels linked to earnings.
“Ireland’s pension time bomb on the other hand is the continuing erosion of good quality defined benefit schemes due in part to government regulations on the funding standard.”
So, all told the domestic scene is not altogether rosy. The question has to be asked whether the authorities wouldn’t be better advised to see to their own problems at home first before trying to expand internationally. They would argue that Ireland’s growth as a financial centre has been a major factor in the Celtic Tiger phenomenon.
The IAPF’s October report concluded that pensions policy must switch from a narrow focus on increasing coverage to protecting the adequacy and coverage of existing pension schemes.
The study, ‘Pension Provision in Ireland for 21st Century’, was put together by Shane Whelan, of University College Dublin. It also found that introducing additional pensions compulsion on top of the mandatory State Pension Scheme might be “politically unworkable”.
Brennan is considering creating a new pensions system under which people would be automatically enrolled into a pension scheme and given the chance of opting out. This is short of mandatory pensions for all – but there is likely to be significant resistance from employers, the financial sector, unions and advocates for the poor.

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