Why auto-enrolment pensions are ‘a disaster in the making’

[Duke of Marmalade]

To be fair, a typical global equity fund would have a risk rating of 5 or 6.

We don't want to go too far off topic but below are the PRIIPS risk ratings.
Your typical global equity fund would have a sub 20% volatility which would put it as MRM 4. Bitcoin has 60% volatility which is MRM 6. Though I agree that they will probably fall back on Article 69(6)(b) and use custom and practice which would be in line with your ratings. However, the tax anomaly of this topic do not encourage one to believe they will listen to practitioners. Yes, I agree that there is a lot to be said for one fund from cradle to grave.

 

[Sarenco]

@Colm Fagan

Thanks for the clarification.

However, it strikes me that arrangement is going to be even more complicated to administer that simply providing a suite of TDFs. The age of every single member will have to be monitored in order to trigger the relevant fund switches - I don’t see how that could be automated.

It will be interesting to see if the big fund houses tender for this work and, if so, at what price.

My suspicion is that the cost of establishing and running the scheme as designed is going to be extravagant.

 

[Duke of Marmalade]

The age of every single member will have to be monitored in order to trigger the relevant fund switches - I don’t see how that could be automated.

They will presumably have the DOB of the contributors. Even when I was employed we managed to handle changes in age in our valuations etc., today it should be even easier with AI.
But I do agree that this proposed approach is another blunder. For a start they are hard-coding "precipice" style changes as @Colm Fagan alludes to. Furthermore they are hard-coding today's views on lifestyling into the machinery. The NEST approach can more easily adapt to changes in current thought on this highly controversial approach - our system would need legislation if it was necessary to adapt to current thinking on these matters.

 

[Dr Strangelove]

No surprise:

Speaking on RTÉ's This Week, Mr Chambers said the deadline for the auto-enrolment of workers into pension schemes is also likely to be pushed back beyond the current September date

Minister signals minimum wage, pension enrolment delays

The Government is stepping up plans to keep business costs low as it aims to maintain jobs across the economy amid the uncertainty caused by US trade tariffs.

www.rte.ie

 

[Towger]

The have not even picked the fund providers and expected them to be geared up for a big bang launch by September!

 

[LDFerguson]

Government have caught a lucky break. They would have struggled to get the Auto Enrolment system up and running by September. Now they have been handed a way of saving face and making it sound like they "made the decision" to postpone the launch out of consideration for the concerns of small businesses etc.

Now that they've been handed this lucky break, I really hope that they can use the additional time to re-think aspects of the AE system and launch an improved version in 2026. Examples...

• Allow for voluntary contributions.
• Allow for a variable retirement age.
• Consider the possibility of partial drawdowns before retirement in limited, specified circumstances.
• Get a bunch of people who know what they're doing to give the investment proposal by @Colm Fagan a proper evaluation.
• Come up with a better solution to the issue of how the SSIA-style Government top-ups proposed for AE interact with other forms of tax relief on other pension arrangements.

Auto Enrolment is a great idea and now the Government has the opportunity to do it right.

 

[nest egg]

I really hope that they can use the additional time to re-think aspects of the AE system

Can we add, 'keep the AE approach the same as every other pension product?'
This "SSIA style" top up I'm sure did well with the focus groups, but it makes an already complex pension landscape even more so, and to state the obvious, when you're auto-enrolling people into a scheme, they don't need to be persuaded to take part.

 

[LDFerguson]

Can we add, 'keep the AE approach the same as every other pension product?'
This "SSIA style" top up I'm sure did well with the focus groups, but it makes an already complex pension landscape even more so, and to state the obvious, when you're auto-enrolling people, they don't need to be persuaded to take part.

Absolutely. I remember when PRSAs were first launched and they had prescribed charges, underpinned by legislation, that were far simpler than what had gone before...

• Only two charges permitted, on contributions and fund value.
• Charges could be expressed as a simple percentage only; no policy fees, no bid/offer spreads, no initial or accumulation units etc.
• No exit charges on transferring out.
• Limits on charges on Standard PRSAs.

All good stuff and I can remember it being said that other pension products would simply die on the vine because over time, everyone would just buy PRSAs and so the other products would cease to exist as nobody would buy them.

That didn't happen and PRSAs just ended up being yet another option that I have to explain to people and compare, with its own set of rules, on top of all the pre-existing products.

So yes - definitely - keep the AE approach the same as other pension products.

 

[Towger]

Absolutely. I remember when PRSAs were first launched and they had prescribed charges, underpinned by legislation, that were far simpler than what had gone before...

The legislation for PRSA was so botched that at one stage employer contributions had to be taxed as a benefit in kind.

 

[LDFerguson]

The legislation for PRSA was so botched that at one stage employer contributions had to be taxed as a benefit in kind.

Even now, over 20 years after the introduction of PRSAs, the older type products still exist and have separate rules to PRSAs around maximum contributions by employers, options at retirement etc. So instead of pension simplification, a director of a small company has to evaluate two different options and their respective pros and cons for their particular situation and that of their employees. If Auto Enrolment is introduced as is currently proposed, it will add a third set of rules for any employer to get to grips with. Not helpful at all.

 

[Duke of Marmalade]

Government have caught a lucky break.

That was how I read the headline - Chambers using Trump as an off ramp for AE.
But that is not how the interview went. In a completely separate question in the interview he was asked to respond to an article in that day’s Sunday Times saying industry sources were skeptical of the September launch date. He had no choice but to concede the point but argued that it would be a short delay and that they were fully committed to AE. Heather Humphreys would have found it difficult to make this climb down.

But I think he should have availed of the “off ramp” to abandon AE altogether. @Colm Fagan used FOI to ask for the projected costs of administering the scheme. His request was rejected as “being not in the public interest”.

 

[Dr Strangelove]

He had no choice but to concede the point but argued that it would be a short delay and that they were fully committed to AE.

Politically it’s very difficult to discard primary legislation that very recently used up scarce Oireachtas time.

Especially as two of the three parties who did it are still in government.

This issue has failed to capture the interest of anyone but a small number of people. And that small number of people are old enough and wealthy enough never to be impacted by it.