Irish Economy
Irish Budget 2014: Half of Ireland's workforce have no occupational pension coverage
By Michael Hennigan, Finfacts founder and editor
Sep 11, 2013 - 3:35 AM

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Irish Budget 2014: While a survey published on Tuesday by Friends First, the financial services firm, shows that 71% of employees in Ireland are now investing in a pension - - up from 67% in 2012 and 63% in 2011, the latest official data shows that only half Ireland's workforce, including both employer and personal plans, have occupational pension coverage.

Pensions are a low priority for politicians and senior civil servants as they are well provided for themselves with an unfunded guaranteed system linked to the current earnings of incumbents of the last position held in the public service. 

In 2011, the Central Statistics Office (CSO) said in a report [pdf] that pension coverage among self-employed workers fell considerably from 47% in Quarter 1 2008 to 36% in Quarter 4 2009. In comparison, coverage among employees fell only slightly from 55% to 54% over the same period. Just over half (51%) of workers aged between 20 and 69 years had a pension in Quarter 4 2009. This compares with 54% in Quarter 1 2008 and 52% in Quarter 4 2005.

According to calculations outlined in a 2013 report [pdf] from the Organisation of Economic Cooperation and Development (OECD), at the end of 2009, only 41.3% of workers (including in the public sector) aged 20 to 69 were enrolled in a  funded pension plan, either occupational or personal.

Ireland and New Zealand are the only OECD countries which do not have a  mandatory earnings-related pillar to complement the State pension at basic level; as  a result, Ireland, like New Zealand, faces the challenge of filling the retirement savings gap to reach adequate levels of pension replacement rates to ward off pensioner poverty. The level of the basic pension in New Zealand, however, is higher than in Ireland. It corresponds to almost 40% of the average wage compared to 29% in Ireland on the average definition used by the OECD.

Defined benefit (DB) schemes provide a guaranteed payout linked to salary; defined contribution (DC) schemes generally have a lower employer funding level and the payout depends on investment performance.

The OECD report says that the number of active members of DC schemes in April 2012 was 239,150, a decrease of 20,582 members as compared to 2010. The number of DB schemes registered with the Pensions Board declined only by 20 between December 2010 and April 2012 to 993 schemes. During the same period, the number of active members in these schemes declined by 24,895 to 197,177.

The number of PRSA contracts grew during 2011 by 10,924 to 198,038 with total assets of €3.03bn (representing 1.9% of GDP), an increase of €290m since 2010. Both in terms of assets under management and members, PRSAs are dwarfed in size by occupational pension funds.

Given the economic backdrop, the Friends First main finding should be viewed with scepticism.

Other issues covered in the OECD report include:

  • The Irish legislation regarding the protection of DB plan members is weak. For example, the guarantee schemes in Ireland (Insolvency Payment Scheme and the Pensions Insolvency Payments Scheme) provide partial protection to DB plan members’ benefits in case of sponsor insolvency. In addition, the legislation allows any sponsor to ‘walk away’ from DB pension plans, shutting them down, without creating a high priority debt on the employer. Moreover, the priority currently given to pensioners before other members if a scheme winds up creates large inequalities across members. This outcome is particularly harsh for those close to retirement.
  • There is unequal treatment of public and private sector workers due to the prevalence of defined-benefit (DB) plans in the public sector and defined  contribution (DC) plans in the private sector.
  • The link between contributions and benefits in the Irish State pension scheme is very weak, for reasons spelt out in the report, contrary to what people’s perceptions of this link may be.
  • The State pension scheme could be modernised to encourage working longer in line with the prevailing international trend.
  • The new scheme for public servants is being phased in only very slowly and is unlikely to affect a majority of public sector workers for a long time.
  • At a minimum, the current inequities in the treatment of workers’ contributions to the system should be removed and all contributions made should be honoured in the calculation of the pension benefit, as foreseen in the current plans to adopt a total contributions approach from 2020 onward.
  • Any new private pension scheme for private sector workers should also be extended to public servants, at a minimum for new entrants but ideally also for some of the existing public servants.
  • Strengthen the Irish legislation regarding the protection of DB plan members when plans wind up. For example, healthy plan sponsors should not be allowed to “walk away” from DB plans unless assets cover 90% of pension liabilities. This funding requirement would introduce some type of guarantees for members and it would allow at the same time some degree of risk sharing.
  • According to OECD calculations using data from the Quarterly National Household Survey (QNHS) for 2009 Q4, 42.7% of the members of an occupational pension plan in Ireland are members of a DB plan (including all public sector staff), while 43.4% say that they participate in a DC plan. Surprisingly, 13.9% of covered individuals did not know the type of plan they are enrolled into.

Irish Budget 2014 Page

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