Talking about saving for a pension in a week when hundreds of people were unceremoniously dumped out of their tech jobs may seem strangely irrelevant. But if the debate around auto-enrolment means anything, it is the importance of starting to save early for retirement while you have the resources.
One of the challenges with auto-enrolment will be getting people comfortable with the concept of risk. Risk, in pension terms, means equities. Irish people can be very risk-averse – a trait not helped for certain generations by the fiasco that was the Eircom flotation, in which most people who invested lost money.
State Street Global Advisors’ Alistair Byrne argues that it is a question of balance between “taking the risk to get long-term returns and the other risk, inadequacy, that the assets are not sufficient when you get to the point of retirement”.
“For the younger members, I don’t see an alternative to significant amounts of [higher risk] equity; I don’t think there is any kind of magic beyond that.”
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The trickier issue will be for those signing up for a pension scheme later in life – under auto-enrolment or otherwise.
“At that stage where you are getting closer to retirement, you need to be more careful with managing risks because you don’t necessarily have the same length of time for recovery” if things go wrong on investment returns, Byrne says.
“Traditionally you bring in [lower-risk] fixed income [bonds], but yields have been at an artificially low level in recent years.”
The other risk he sees is the two-tier structure of State incentive for pension saving. Under auto-enrolment, people will get €1 of government money for every €3 they save – 33 per cent. People on private pension schemes can get up to 40 per cent.
“It would be much simpler if it was a single rate that applied,” he says. “It strikes me that having two systems is a complexity that is better avoided.”
However, the biggest risk of all, says Byrne, would be for the Government to once again long-finger auto-enrolment. “It is time to start. It’s a long-term challenge and there is never going to be a good time to start this,” says Byrne.
