The OECD recently published its report on the pension systems in Ireland. The report examines all aspects of the Irish pension system including the provision of state pensions, occupational schemes in both the private and public sector and personal private pensions.
Some of the recommendations of the report include:
Increasing private pension coverage through:
- Compulsory membership
- Automatic enrolment
- Improving existing tax incentives for pension savings
Reform of the State pension by:
- Replacing it with a universal basic state pension (regardless of the amount of contributions paid through PRSI) or with a means tested pension
- Offering incentives such as an increased State pension for those who remain in the workforce longer
- Linking the retirement age to life expectancy after 2028 (when it is scheduled to rise to 68)
Improvement to the Design of Defined Contribution (DC) Pension Schemes by:
- Establishing appropriate default investment strategies while also providing choice between investment options.
- Encouraging retired members to purchase an annuity at some point during their retirement in order to protect against longevity risk.
- Significantly the report also stated that while it wished to keep the principle of pension savings being “locked away” until retirement, the Government could consider allowing members make withdrawals from their pension savings in cases of significant financial hardship
Enhancing the Security in Defined Benefit (DB) Pension Schemes by:
- Strengthening Irish legislation on the protection of DB scheme members when such schemes wind up, suggesting that employers should not be allowed to abandon such schemes unless assets of that scheme cover 90% of the pension liabilities
- Introducing more flexible DB pensions that would allow for accrued benefits to be cut in cases of underfunding and more risk sharing between members and pensioners
Responding to the report, the Minister for Social Protection, Joan Burton, acknowledged that the government had a responsibility to drive up private pension coverage but said that this can only be done when the economy has recovered.