Sir, – The automatic enrolment pension scheme – or “My Future Fund” as it was described in Tuesday’s budget – will be introduced on September 30th next, but it is already clear that it will fail to meet its primary objective. Incredible as it may seem, the scheme will be unable to pay pensions to retired members.
Workers must leave the scheme at retirement, when they will receive a lump sum in full discharge of the scheme’s liabilities.
If they want to convert the lump sum into a pension, they must search the market for a suitable individual product from a commercial provider (and may have to repeat that search many times subsequently in retirement).
They will lose the scheme’s bulk-buying power and the expertise of its investment managers, so charges will be higher and investment returns lower, which in turn will lead to lower pensions.
The decision to oblige workers to leave the scheme at retirement is one of the main reasons why pensions will be less than half what they would be under an alternative approach where retired members stay in the scheme and continue to enjoy the benefits and protections of scheme membership.
An official explained that the decision to allow the private sector exclusive access to the post-retirement market is to compensate for its exclusion pre-retirement.
However, the decision comes at a high cost: some estimates put the cost to the economy at over €2.2 billion a year in current money terms from the end of the scheme’s initial ramp-up phase.
The cost in the early years will be lower.
At a 2023 meeting with the Joint Oireachtas Committee, the ESRI raised some concerns. Those concerns were ignored in the final scheme design.
It is not too late to address the ESRI’s concerns and to complete an independent assessment of the cost to the economy of allowing the private sector exclusive access to the post-retirement market. – Yours, etc,
COLM FAGAN,
(Past President,
Society of Actuaries in Ireland),
Bray,
Co Wicklow.