The Irish government are planning to introduce a “mandatory” supplementary pension scheme for all workers who are over the age of 22, and earning over a certain threshold. The full details aren’t yet concrete, but the general idea is to try and force the employed population of Ireland to save more money for their retirement and not depend solely on the government supplied pension.
The scheme isn’t actually mandatory – it’s more of a constant nag. Employees may opt out of the scheme, but will be auto-enrolled every two years, meaning if you don’t want in, you’ll have to opt out manually every two years.
While I applaud the idea – we all should be trying to put aside money to live on when we finish work – the execution leaves a lot to be desired. I am planning for my retirement, but haven’t yet started a pension. Instead, I’m managing money for myself and my family in various savings and investment accounts to try and get the best return on the money. I don’t appreciate the nanny-state forcing me into a pension scheme I don’t want to be in every two years.
Economically, I see a lot of fallout from this decision also. On the consumer side of the equation, I can see our already high pension fund fees increasing. The pension funds will have a captive market and not much competition meaning they can all steadily increase their fees. All this will achieve will be the passing of considerable amounts of money from lower and middle class working families to upper class financial “gurus” (who proved their recklessness in search of profits can bring entire industries to the brink of collapse, only to survive by being bailed out by taxpayers).
Another effect of this legislation that’s immediately obvious to me is that employer pension scheme incentives will likely decrease to the 2% minimum over a number of years. If your current employer is generous enough to match your pension contributions above 4% of your salary, why would they continue this when the government says they’ll share the load with employers at 2% each if you put 4% into your pension? So to those who are saving through an employer pension scheme, this will reduce the overall amount being put aside for your retirement
While it seems that some employers can save money by reducing the amount they have to put into employees’ pensions, any employers not already doing so will be required to pay into them. This will increase the labour cost in our already uncompetitive economy, and will be a further burden on small & medium sized businesses (on top of tax and social contributions).
As well as all this, the government say they’ll contribute an amount equal to 2% of the employee’s salary to the pension scheme. Dare we ask where the government will get the money to make these contributions going forward? Will it be another case of money going to the National Pension Fund, which is then plundered for political requirements (eg. bailing out insolvent banks)? Will the money actually be there when it comes to retirement time? If the government are to meet these future obligations, the most likely method is tax increases – eg. a 2% increase on income tax will cover it, but it just means you’re putting 6% of your salary into your pension and your employer is putting in 2%. And, while the government probably won’t be as blatant as an income tax increase, the tax increases will come in somewhere, and you’ll end up paying for it in some way.
So, what a great deal our nanny-state has come up with for us! Auto-enrol us every two years into a scheme where we pay 4% of our salary in fees to some financial “guru”, pay an extra 2% in taxes and your employer must also contribute an amount equal to 2% of your salary to the financial “guru”. Hopefully, some of this money will make it into a retirement account earning some miniscule percentage so that, when you retire, you can supplement the measly government pension with a further measly amount from your “mandatory” supplementary pension.
But, on the bright side, at least the pension fund managers will have a nice comfortable life and a happy retirement with your money!