PLEASE SEE SOME ANSWERS BELOW
I think AE is a good idea, that everyone contributes and gets a pension at the end. Of concern
My husband had a defined benefit pension. His company, which is American but also Irish based tried to move everybody like him into a defined contribution. He got the very slick hard sell. Loads of glossy presentations that would persuade you black was white. I was not allowed to attend. There was no way he was every going to change from a DB to a DC. Nobody in his company, nor the slick marketing people ever said that a DB is better than a DC. I trust no pension company. Generally am untrustworthy.
Just setting out the stall as a lay person.
I think AE is a good idea, that everyone contributes and gets a pension at the end. Of concern
- costs it has been indicated that costs to savers will be no higher than 0.5% p.a. of their accumulated savings which is certainly much less than a commercial provider would require, the taxpayer will pick up the shortfall; punters are however dumped on the market at retirement age
- guaranteed final pensions this should have been defined benefit like the basic state pension, but the zeitgiest is to leave all the risks (except costs) with the punter
- fund managers taking too much in commission investment costs are actually quite low, around 0.15% p.a. financial advice is more expensive (a) intrinsically and (b) unnecessarily as providers compete for the intermediary rather than the punter. Thankfully intermediation costs should not arise in the savings phase
- funds taking too much risk the investment management will be closely overseen by either the NTMA or a similar body and things like diversification will be de rigeur, but see my earlier post on the whole concept of risk/reward in investments
- funds going bust with all risks except costs being laid at the punters, there is no chance of the "funds" going bust. Costs will presumably be underwritten by the taxpayer
- nobody being actually accountable pass
- another quango to manage it pass
- state backed guarantees see above
- the possibility that if you have AE you won't get the state pension now I do believe that is a valid concern. I have always regard PRSI as just another tax and am almost surprised that I receive the full basic pension (albeit subject to tax); if the aging population is not matched by technological productivity gains I see the basic pension becoming totally means tested sometime in the next 40 years. It would be a bit of a kick in the teeth if your AE savings meant you failed the means test
- being told everything is great and down the line finding out otherwise that's life
I'd also like a simple explanation. Perhaps because it's no longer of concern to us I'm not following this properly. I don't see anything in the newspapers. I tried
Hi Bronte
Probably this presentation is the most straightforward explanation. There's lots more on my website colmfagan.ie
The Bill before the Oireachtas treats AE exactly the same as a normal DC pension. There is a "default" approach where members are put into high-risk unit-linked funds at the start, then moved gradually to lower-risk funds as they get older. When they retire, the scheme pays out a lump sum. If they want to use that lump sum to provide a pension for life, they have to buy an ARF or an annuity from an insurance company or other financial services provider.
My proposal looks at the scheme as a whole. Members' individual accounts look like - and are administered like - high interest deposit accounts earning an average interest rate of c4% a year more than bank deposits. During a person's working years, contributions are added to the account, then they gradually draw from it in retirement to provide a pension. There is a special Longevity Protection Fund to protect retired members from running out of money if they live too long.
The Pension Council's own independent expert estimated that pensions under my proposal would be more than double those under the Bill, but the Pensions Council advised the Minister to reject it, a recommendation she accepted. That's what all the fuss is about!!!
Do you seriously not think that a future government will water down the state pension if everybody has an AE pension. Or they will do something to tax the AE.- the possibility that if you have AE you won't get the state pension = no, the social insurance pension is based on SI contributions
I'm just assuming monthly contributions. They're paid out of regular earnings, so they could be weekly. The employer and the state contributions are assumed to be added at the same time.So everybody in the AE would put in their contribution monthly, the money would be managed by who at what cost?
Contributions will be invested in top companies. At the moment, we're talking about the likes of Microsoft, Apple, Amazon, Berkshire Hathaway (Warren Buffet), etc.; the composition will change over time. Share prices can fall sharply in the short-term, but the businesses will by and large continue. My proposal looks at the long-term. Returns will be smoothed to even out short-term humps and hollows in share prices. Some people have a problem with this, because it means that people may join (and leave) at other than market value. That can only be done in auto-enrolment, where they can't cut and run at the drop of a hat (if the market falls and smoothed value exceeds market value), nor can they suddenly pile in (if the market rises and the smoothed value is less than market value).What happens if you have a period of high risk funds tanking?
There's no such thing as an annuity under my proposal. Members stay in the scheme post-retirement (after taking 25% as a lump sum gratuity). Think of it as a deposit account, paying an average of 4% a year more than a bank account (I think it will be more than 4% on average). Members add to the account while they're working, then draw from it in retirement, earning interest all the time. I have devised what I call a "Longevity Protection Fund" (LPF) that people can join from age 75. For a small cost (in the form of a reduced interest rate from age 75), they can protect their regular (pension) drawings from the risk of outliving them. They won't be forced to join the LPF. The details are in my paper (section 5). Another important thing about post-retirement is that, if a retired person has a pot of (say) €100,000 and they die, the full €100,000 is payable to their estate or dependants. As you know, the money is gone if you die after buying an annuity (unless you die within the guarantee period of 5 years or whatever).I don't like the fact that on retirement you have to buy an annuity. I'd prefer to cash it in, which is what we did with my husband's DB scheme. Doesn't an annuity mean the pension companies get paid even more, and they have no incentive to offer good ones. There have been periods of terrible annuities.
Your question can be interpreted either as asking if returns are guaranteed or how certain am I that the scheme will work.What guarantees are there on any of this all working.
It's a very good question, but I don't have an answer. I don't know why the Pensions Council took a negative decision on my proposal. In statements to both Dail and Seanad, Minister Humphreys pretended that the Pensions Council was a paragon of independence and implied to TD's and Senators that she only rejected my proposal because of its advice:Clearly if your scheme would result in a bigger pension pot than what is proposed it would be pretty idiotic to do otherwise. Why does the Pensions Council object.
A quick Google of "smoothed pension funds" comes up with quite a few results. It seems there are plenty of options in the UK market, and even 2 from New Ireland. And that doesn't even include with profits funds which are also smoothed and have been in operation since before most of us were bornAs Minister, I could not foist an untested and unproven theory
Sorry. That was accidental but I can’t delete it.A quick Google of "smoothed pension funds" comes up with quite a few results. It seems there are plenty of options in the UK market, and even 2 from New Ireland. And that doesn't even include with profits funds which are also smoothed and have been in operation since before most of us were born
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