The pensions sector has already undergone enormous change in recent years. The only prediction that can be made with absolute accuracy is that more is coming.
“It can be easy to forget how fundamentally the retirement landscape in Ireland has changed over the past 10 to 15 years. Defined benefit schemes have fallen from over 2,500 in the early 1990s to around 650 today. We have just experienced one of the worst economic events of our lifetime. Annuity rates are at historic lows. The ARF option, which allows retirees to invest their pension funds, has only been widely available since 2011 and we are living much longer in retirement,” says Colm Power, financial planning manager at Davy.
The responsibility of ensuring people have a pension has moved from the State, and the employer, to the individual.
Among the future changes coming down the tracks are possibly deferred annuities, a guaranteed income that kicks in if you are still alive in later life. It’s a development already seen in the US.
“For example you could buy an income of €20,000 each year that begins to pay from age 80 for a fixed sum when you retire at 60. These are cheaper than traditional annuities due to the deferred payment but provide financial protection against the cost of longevity. They are not currently available in the Irish market but could be a very useful tool for a retiree in managing risk,” says Power.
Auto enrolment is perhaps an even surer bet. "In the future we will have to opt out of pension schemes, not opt in," says Brian Kingston of Investec. "Look at Australia, now 26 years into auto enrolment and almost everybody there will have a pension pot when they retire." Its arrival was flagged last month by An Taoiseach Leo Varadkar as likely to be introduced by 2021.
Most of us will likely have to retire later too, predicts Kingston. “Already we are looking at having to work longer, 70 has been mentioned. I’m 41, it will probably be 75 by the time I finish up.”
“The ESRI recently said we will all be working until we are 70,” agrees Mairead O’Mahony, partner defined contribution scheme and financial wellness at Mercer.
“It will be a difficult pill to swallow but inevitable. We need to re-look how we approach work however. It doesn’t necessarily mean we will have to work at full tilt from 20 to 70, but maybe could take our foot off the gas in our 20s and 30s, when we have other commitments. It could be about looking at work-life balance over our entire careers. And, equally, instead of a cliff edge at retirement, maybe, after having spent all our lives working our way up through organisations, we could work our way back down too, or work part time. We need to encourage older people to stay in the workplace in ways that suit them. It would be good for organisations and good for people.”
We are likely to see a streamlining of the vast array of pension schemes in operation too, says O’Mahony.
"The Pensions Authority has called for changes, saying there are too many schemes in operation here. It wants master trusts so that the six-man hairdresser on Main Street can go in with the Musgraves and Intels of the world and benefit from economies of scale," she says.
For Munro O'Dwyer, Pension Partner, PwC, the advent of auto enrolment could be a catalyst for something great. "It fundamentally change the debate in Ireland. It will no longer be just about public versus private pensions and which is better. Instead we have an opportunity now to shape the pensions system for generations to come," he says.
“I hope we grasp that opportunity and don’t listen excessively to the vested interests of employers or unions but genuinely keep the focus on enabling people and their pensions. If so, my hope is that we will end up with a world leading, world beating pensions system.”
