@Colm FaganIt was with a deep sense of sadness I learned this morning that Ireland's auto-enrolment Bill was passed into law last night. So all my efforts to show that there's a far better way to do AE than to treat it as a collection of individual DC pension arrangements have been in vain.
I gave it my best shot. It wasn't enough.
To all who've supported me for the last six years, I'm sorry. I'm thinking particularly of Brian Woods, who has been my intellectual rock for the last 50 years. Brian had his doubts initially, but I think I finally managed to convince him!
Well to be fair there has been an awful lot of cooking in this piece of legislative pie. About two years ago the Draft Heads of a Bill were published. We then had about 3 months of a public Joint Oireachtas Committee review of these Heads. We then had the Minister ask for an independent review of Colm's proposal. Finally we had the Bill which went through 3 stages in the Dail then 3 stages in the Seanad and finally the formality of the Dail passing the Bill into law.What's unforgivable is that there seems to have been no one in the chamber to debate this. Auto-enrolment is incredibly important to the long-term strategic future of planning for our retirement. What are the busy-bodies in Leinster House doing that's more important than this?
Thank you Colm. I am more wise today than I was yesterday after reading your summaries. I enjoyed reading them (in fact I kept rereading them and will continue to) But, selling the concept would not be easy whether greater rewards would not or would accumulate down the line. I can see where the likes of me would balk. That is not to say I disagree with you, but older Irish people would prefer to see what is in the hand rather than what might be there even though potentially greater.@Leper
Continuing….
The focus of my proposal was on how contributions would be invested.
The scheme per the Bill treats auto-enrolment (AE) as a normal DC (defined contribution) pension scheme. There is a a "default" investment strategy (over 90% are expected to opt for the default strategy because they don't have a view on the stock market). The default investment strategy is to invest in high-risk unit-linked funds to age 51 (high-risk are expected to earn higher returns on average), then to shift to medium-risk funds until age 61, then to low-risk funds in the five years to retirement at 66. The idea is to protect members from the risk a sharp fall in the value of their pension pots close to retirement. At retirement, there is a lump sum entitlement, which members can use to buy individual post-retirement products.
My proposal views AE very differently. This article for the UK's "Actuary" magazine describes it in general terms, not specifically for Ireland; this presentation contrasts it with the scheme proposed by government (some of the detail differs slightly in the final version).
The Minister (advised by the Pensions Council) rejected my proposal. Sin scéal eile, as my daughter, an Irish (and Spanish) teacher might say.
Which is ironic, as there's nothing in the hand.Thank you Colm. I am more wise today than I was yesterday after reading your summaries. I enjoyed reading them (in fact I kept rereading them and will continue to) But, selling the concept would not be easy whether greater rewards would not or would accumulate down the line. I can see where the likes of me would balk. That is not to say I disagree with you, but older Irish people would prefer to see what is in the hand rather than what might be there even though potentially greater.
I'm vaguely recalling something about the Swiss pension system having legal minimum investment returns or some such. That doesn't sound too far away from your idea of returns smoothed by applying an interest rate. Another to add to the list of precedents that the government have ignored.Thanks, @Fortune I misread @Leper 's post initially.
You're right. It will take years yet to get the scheme as proposed up and running. They could easily ask ESRI to investigate my proposal, without delaying plans to collect contributions, etc. If, by some fluke, they were ready to go before the review was completed (most unlikely), they could simply keep contributions on deposit pending its completion. My proposal will be so much easier to implement and administer. The money simply goes into one big account, which pays the same interest rate to everyone. One could make the case that my proposal could be introduced quicker than the complicated unit-linked proposal that's on the table.
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