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Thursday Newspaper Review - Irish Business News and International Stories - - April 18, 2013
By Finfacts Team
Apr 18, 2013 - 7:32 AM

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The Irish Independent reports that up to one million workers with no pension face the prospect of being forced to take one out for the first time.

The Irish Independent has also learned a key report recommends that the contributions for these pensions should be double the original plan.

Workers, employers and the State should contribute 15pc of salary to the new scheme, it says.

The report commissioned by Social Protection Minister Joan Burton recommends that most of the one million workers with no pensions should be signed up for a private scheme and given no option to leave it. The study -- from Paris-based international think-tank, the Organisation for Economic Co-operation and Development (OECD) -- says the most "effective and least costly" way to deal with the mounting pensions crisis is to force cash-strapped workers to put aside some of their wages to fund their retirement.

At present, six out of every 10 private-sector staff have no work-based pension -- and rely on the state- contributory pension when they retire.

With the number of pensioners set to explode over the next three decades, the taxpayer can no longer afford to keep state pensions at the current level.

This means workers will have to boost their own pensions at a time when they can least afford to do it.

The move will be seen as a tax on middle-income workers who cannot afford to put their own pension arrangements in place.

And employers are likely to baulk at having to stump up money to provide pensions for staff, particularly smaller firms.

OECD officials were commissioned by the Government to tell them how to tackle the country's pensions time-bomb.

Although the Government has yet to make a formal decision on the timeframe and structure for the new scheme, it will be difficult for it to go against the advice of the prestigious think-tank.

The report states that compulsory private pensions are "the least costly and the most effective approach to increasing private-pension coverage".

Ms Burton is known to be in favour of some form of private pensions arrangements for the more than half of the workforce who will only have the state pension when they retire.

She has spoken of a system where those who have no private pension are automatically enrolled in one, but can then choose to opt out.

Up to now, the expectation was that contribution levels would be around 8pc, with workers, the State and employers all making contributions.

Enrolled

However, the OECD is set to recommend that middle-income people over the age of 22, without a private pension, should be automatically enrolled and given no opportunity to opt out.

It says lower-paid people will not have to take up the scheme as they will already qualify for the state contributory pension and the level of their earnings means they would not gain much from having an additional private pension.

Not allowing middle-income earners to opt out is likely to be hugely controversial as many of those in middle-income jobs in the private sector are already struggling to make ends meet.

The OECD is recommending that the level of contributions into the new auto-enrolment system should be double what had previously been outlined in government proposals.

The state pension, which is around ¿230 a week for those who have paid sufficient pay-related social insurance (PRSI), is not seen as adequate for a comfortable retirement. Most workers pay 4pc in PRSI.

There is also concern that just one-eighth of the population is aged over 65 at the moment, but up to a quarter of the population will be over that age by 2050.

The Irish auto-enrolment scheme had been due to come in next year. At Christmas, Ms Burton said she was pressing ahead with the plan, but stressed that it would not be introduced until the economy improves.

She said recently that auto-enrolment would be particularly beneficial for people on low and middle incomes. It would also help those moving in and out of different jobs, who had very little opportunity to save for a traditional pension with their employer.

"With an auto-enrolment scheme, they would be paying a fixed amount relative to their income and the Government would also contribute to that," she said.

"That would mean that by the time they retire, they could look forward to a decent level of pension -- the contributory social welfare-based retirement pension but also an additional amount of savings, which would give them a bigger income in their retirement."

The State first launched a plan for an auto-enrolment pensions as part of the National Pensions Framework in 2010.

The OECD also recommends that workers in defined-benefit schemes should get more of the assets when the plans are wound up. At the moment, pensioners have first call.

OECD official Paulo Antolin consulted widely with people with an interest in pensions in drawing up the report, which will be launched on Monday by Ms Burton and the OECD.

A spokesman for Ms Burton's office had no comment.

The Irish Independent also reports that deposits held by Irish banks covered by the state guarantee rose fractionally last month, despite the fallout from the controversial Cypriot bailout.

Allied Irish Banks Group, Permanent TSB and Bank of Ireland saw deposits increase by 0.6pc during the month to €155.6bn.

This was mainly due to strong retail deposits.

The guarantee on deposits above €100,000 expired at the end of March. The Department of Finance said its end had no impact on deposits.

Wealthy depositors and senior bondholders took a hit under the the Cypriot bailout, sparking fears that money could be pulled out of banks elsewhere in the eurozone.

However, the figures released by the Department of Finance confirm the bailout had no impact here.

While headline deposits increased during March, the weakening of sterling against the euro continues to affect deposit values. About 53pc of the movement in UK deposit values since December is attributable to unfavourable exchange movements.

Meanwhile, the reliance on European Central Bank (ECB) funding by the banks dropped 10pc during the month. Year-on-year borrowing from the ECB was down about €25.8bn, or 39pc, to €39.6bn last month.

"The steady decline in reliance on ECB funding reflects the continued strengthening of the banking system," the Department of Finance said.

The Irish Times reports that a new insolvency service is to be launched in Dublin today and individuals with children going to private schools and availaing of luxuries such as a second car and satellite television may have to give them up if they seek to enter an official insolvency arrangement to settle the debt.

The Government expects the Insolvency Service to take a firm line with distressed borrowers on their living expenses, the argument being that many borrowers are doing without second holidays and other luxuries to ensure they can make their mortgage repayments.

Applications

As the newly established Insolvency Service of Ireland prepares to accept insolvency applications from June, it is anticipated in political circles that the first settlements could be finalised by September or October. Such settlements will be subject to the agreement of banks and other creditors.

Minister for Justice Alan Shatter will introduce the new body at an event this afternoon in Government Buildings at which the service will initiate an information campaign to explain how it will go about its work. The organisation – led by former Deloitte accountant Lorcan O’Connor – will publish guides to debt settlements at this event. A website goes live today and the service is set to open an information line for queries.

Cornerstones

One of the cornerstones of the package is the release of official guidelines on a “reasonable standard of living” for insolvent debtors and “reasonable living expenses”. These are expected to prove contentious given the expenditure limits they will impose on insolvent debtors.

The guidelines – drawn up in consultation with the Government – are central to the insolvency regime as they set out how much money people will be allowed to spend within the insolvency arrangement. This will include limits on expenditure on items such as food and basic medicine.

Although the aim remains to impose the same basic set of criteria on all insolvent debtors, a source briefed on the plan said it will embrace a degree of flexibility to ensure a “sensible” approach is taken.

For example, this may provide leeway for an exam student in a private school whose parent enters an insolvency arrangement to stay at the school.

The Irish Times also reports that AIB is planning to reduce its cost base by €350 million annually over the next two years, the newspaper has learned.

This would be the equivalent of 21.6 per cent of its personnel and general and administrative expenses last year and would be the biggest cost-reduction programme implemented by an Irish bank.

It is understood that staff have not been informed of the size of the cuts planned by AIB over the next couple of years.

It is part of chief executive David Duffy’s plan to return the bank to profitability. AIB recorded an operating loss of €2.84 billion in 2012. When a number of exceptional costs are included, this loss widened to €3.6 billion.

The bank is targeting €200 million in savings from its severance and early retirement programmes, about €35 million on pay and benefits and the rest in other operational savings.

The project is being led by Anne Boden, AIB’s chief operating officer who joined the bank in July 2012 and has extensive experience of financial services in the UK.

New technologies

A key part of her role is to introduce new technologies to enhance customer service and drive efficiencies for the bank. On Monday, AIB opened a digital concept outlet at the Dundrum Town Centre that will trial a number of IT customer service initiatives that could be rolled out in branches over time.

AIB has already agreed a voluntary severance programme that will result in 2,500 staff leaving by March 2014.

It had 13,429 full-time equivalent staff at the end of December 2012, including those on paid leave. The bank is aiming to get its head count down to about 11,000.

It is currently in the final stages of closing 67 branches in the Republic and 12 in Northern Ireland and Britain, and will close its operations in Jersey and the Isle of Man by the end of 2013.

In addition, the bank is in negotiations with the Irish Bank Officials Association on the outsourcing of about 70 IT roles at facilities in Dublin, Belfast and Northampton to HCL.

AIB is also in talks with staff on closing its defined benefit pension scheme and transferring them to a defined contribution arrangement. This is the subject of talks at the Labour Relations Commission and is being resisted by the IBOA.

It is understood that such a move could net the bank a saving of €180 million.

It is proposed that AIB would make a contribution of 10 per cent to the new scheme for employees.

Staff are also being asked to make a voluntary contribution of 2 per cent, which would be matched by the bank.

The Irish Examiner reports that the proposed EU-US Transatlantic Trade and Investment Partnership free trade agreement could boost the economy by €800m per annum in increased GDP, and help create 4,000 jobs.

And one in five companies believe the proposed partnership will result in job creation at their firms, an Ibec member survey has found.

US and EU business leaders meet in Dublin Castle today, in parallel to a meeting of EU trade ministers, in an effort to advance talks towards a major new transatlantic trade deal.

The EU trade ministers meetings will be crucial in determining the likely parameters of a new partnership free trade agreement which has the potential to provide a major economic boost to both the Irish and global economies.

Minister for Jobs, Enterprise and Innovation Richard Bruton said assessments made by the EU Commission and other European bodies, a comprehensive trade and investment partnership could over time boost EU GDP by 0.5% per annum and help create some 400,000 jobs in the EU.

“Based on those assessments, if Ireland simply benefited in proportion to the size of our economy, a comprehensive trade and investment partnership could over time provide gains to Ireland in the order of €800m per annum in increased GDP, and 4,000 new jobs,” the minister said.

A new survey of Ibec members highlights the enormous benefit to jobs and investment that a trade deal could have for Ireland.

52% of companies said a deal would lead to increased trade with the US, 20% said a new trade deal would increase investment in their company and 19% of companies indicated that a deal would lead to job creation in their firm.

Of those companies that currently export to the US, over half (51%) said a deal would increase the value of these exports. 142 companies took part in the survey, large and small, from a cross-section of sectors, including companies that export and those that do not at present.

The Dublin Castle discussions are being chaired by president and CEO of the US Chamber of Commerce, Tom Donohue, and president of BusinessEurope, Jurgen Thumann, and will be attended by Minister Bruton, European Commissioner for Trade Karel De Gucht, the leaders of European business federations and senior European and Irish business figures.

Ibec chief executive Danny McCoy said: “A transatlantic trade deal has the potential to kick-start new phase of economic renewal on both sides of the Atlantic. Together the EU and US have a combined population of €800m people, almost half the world’s GDP and a third of world trade. A deal would constitute the most important bilateral trade initiative ever negotiated and, as a trading nation with strong US ties, Ireland is particularly well-placed to benefit.

“The US is already one of our key export markets, a new trade deal has the potential to significantly increase the value and volume of these exports. The potential for job creation, new investment and economic growth is enormous. Businesses would benefit from new opportunities, lower costs, a reduced regulatory burden and new public procurement opportunities. It is vital that this opportunity is seized during the Irish EU presidency.”


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