When it comes to pension reform, delay comes at a cost

Delaying needed pension system reforms would put at risk the wellbeing of current and future pensioners. That’s the verdict of the OECD – the 38-strong group of the more developed economies worldwide – in its annual Pensions Outlook.

It’s a timely warning in the context of Ireland’s ongoing efforts to introduce auto-enrolment, a workplace pension scheme that will see most workers signed up to a pension scheme by default.

The current financial and economic uncertainty as well as the rising cost of living may lead policymakers, regulators and supervisors to postpone reforms that could improve their pension systems, the OECD says.

Ireland is promising to bring in auto-enrolment from the start of 2024 – just over 12 months away. As of now, it has got no further than pulling together the heads of the relevant legislation for examination by an Oireachtas committee before the actual wording of the legislation is published. But there is, as yet, no scheduled date for that committee to discuss the issue and it seems unlikely now to happen before the Christmas break.

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The clock is ticking. A key element of the auto-enrolment process is a central processing authority (CPA) which will be charged with managing the system. When the UK set about introducing its mandatory workplace pension scheme, it took over five years to get its equivalent scheme administrator to the point where they could start enrolling workers in the scheme. Expecting Ireland to replicate that process in a fraction of the time seems fanciful.

It seems increasingly clear that the plans to nudge up to 750,000 Irish workers to start saving for their retirement will be put back yet again. And with a general election looming just 13 months later and the economy still likely to be emerging slowly, if at all, from the cost-of-living crisis, the upward cycle in interest rates and an ongoing housing crisis, there is a clear risk that such a delay would be long term.

The last election campaign triggered a fundamental rethink of the State pension. That has had two significant outcomes. First, for largely political reasons, the State has now signed up to an arrangement that will inevitably see a significant increase in taxation to preserve the financial viability of the State pension. And, second, any debate around further reform in the medium-term has now been rendered so toxic electorally that no political party will have any incentive to address it.

A future government might well decide to rethink the entire shape of auto-enrolment and that will inevitably be at the cost of that large group in the private sector currently making no provision for their retirement. There is no “right time” to introduce such a change, given that it inevitably means workers sacrificing take-home pay now for the promise of better times in the future.

Delay would be a mistake. There are clearly issues with the scheme as currently envisaged – not least that it seems destined only to further institutionalise the gender disparity in pensions that sees women generally poorer in retirement – but consigning those 750,000 workers to a future where they must depend only on the increasingly fragile funding of the State pension doesn’t seem like a reasonable position.

As the OECD notes, it is those future pensioners whose wellbeing would be put at risk with delay.

Forget about a loyalty bonus

One in four insurance customers still believes they will be rewarded for their loyalty in staying with the same provider, according to research published this week by the Central Bank.

After a decade of pushing for insurance reform and ample evidence that existing customers have been charged a premium by insurers to subsidise those companies’ efforts to lure new customers, it seems amazing that so many consumers remain so unaware. The message is clear: when it comes to insurance, loyalty does not pay.

But even beyond this cohort, consumers are still paying more than they need. The study of 5,500 home and motor insurance customers found that only around one in four switch provider although as many as 80 per cent do get in touch with their insurer at renewal time. It seems that simply by reducing the premium, insurers can hold on to customers even where there are better offers available to that consumer in the market.

The advice from brokers is clear: “Motorists should ultimately be switching car insurer every two to three years,” says Jonathan Hehir, managing director of insuremycars.ie. “Just because your existing insurer is quoting you a better premium than last year’s, this does not mean it’s the best deal on the market. If one insurer is reducing their price, you can be sure that many others are also doing so.”

With everyone feeling the squeeze from rising prices, taking the few minutes that shopping around involves seems a no-brainer.

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You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us address. If you missed last week’s newsletter, you can read it here.