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Putting pension planning front and centre

Dec 11, 2020

Simon Shirley examines the recent report from the Interdepartmental Pensions Reform and Taxations Group and what it means for pension reform down the line.

In 2018, the Irish government published A Roadmap for Pensions Reform 2018–2023, in respect of a proposed five-year plan for comprehensive reform of the state and private (or ‘supplementary’) pension systems. A key aim of the Roadmap is to promote long-term pension saving to address income adequacy in retirement.

The Interdepartmental Pensions Reform and Taxations Group (IDPRTG) – chaired by the Department of Finance and includes representatives from the Department of Public Expenditure and Reform, the Department of Social Protection, Revenue, and the Pensions Authority – was established to carry out several tasks set out in the Roadmap, namely:

  • proposals aimed at simplifying and harmonising the supplementary pension landscape;
  • an assessment of the cost of State support for pension savings; and
  • a review of the Approved Retirement Fund (ARF) structure.

The group engaged in a public consultation process and received submissions from various stakeholders, including pension/life insurance companies, trustees, lawyers, advisors/brokers, investment managers, and private individuals. In recent weeks, it published a report on some of its work-to-date. This report has been broadly welcomed by the private pensions industry and contains positive and practical steps.

The report contains several proposals to reform and simplify the existing supplementary pension system, i.e. the system that is relevant to most of us working in the private sector who have pension plans. This system consists of two pillars, broadly summarised as follows:

  • Employer-arranged pension plans, known as occupational pension schemes. These are provided by employers for employees and are arranged on a “group” basis (i.e. for more than one employee and are the most common arrangements for employees in the private sector), or on an “individual” basis (i.e. for one employee only and are typically used by company owners and key executives).
  • Individual plans, which are typically used by self-employed sole traders/partners, employees in non-pensionable employment, and employees who are changing/leaving employment.

While many of the proposals make sense at a technical level, at the end of the day, many of us will always require advice on saving for our retirement, irrespective of the number of products, rules, options, etc., that are available. 

As professional pension advisors/brokers, we are at the coalface of the system. For decades we have been advising employers, and individuals from all walks of life, from late teens to 90s, whether starting out or in retirement, whether running their own business to working for a multinational, on planning for retirement and planning in retirement.

No matter how many technical groups are assembled, reports published, public consultations undertaken, etc., the fact remains that adequately planning for retirement will remain challenging for many of us, as we are programmed to engage more with short- to medium-term matters, rather than long-term issues and requirements. While the current system does have anomalies and inconsistencies, some of these wrinkles can often lead to improved outcomes for individuals, and can actually improve the attractiveness of saving for retirement, in conjunction with appropriate advice.

I welcome that the report acknowledges the need for advice and states: “The need for independent financial advice in the lead up to, at the point of, and during retirement is widely accepted. Improving the availability of appropriate advice for pension savers received significant support in the consultation responses.” However, the danger in this process could be that the need for advice ends up being a footnote rather than being front and centre, given the various perspectives, experiences, and interests of the large stakeholders (i.e. the government, relevant state bodes, pension/life insurance companies, etc.). 

Pension and retirement planning is a very personal experience, and a simplified one-size-fits-all solution may not always be in the best of interests of citizens, who tend to have very varied personal and financial backgrounds, objectives and expectations.

To assist the large stakeholders in this process, the voice of the experienced professional advisor (through representative groups such as Chartered Accountants Ireland and Brokers Ireland) should be a key influencer in any changes to be made. 

So far, I have been impressed overall by the preparatory work done by the government and the state bodies in recent years – however, effective ongoing communication and practical implementation of the reforms/changes to be made will be the ultimate litmus test.

Simon Shirley is the Founder of Simon Shirley Advisors. He is the author of the new book, A Practical Guide to Pensions and Life Insurance, from Chartered Accountants Ireland.