Pensions
The Irish government is proposing to introduce a new national pension scheme for workers who do not have an entitlement to an occupational pension. Employees not already in an adequate pension scheme will be automatically enrolled in the new scheme, unless they specifically opt out.

The change of government in 2020 and the difficulties caused by Covid-19 mean that the earliest likely start date for new scheme is 2023, but most observers think that it will be at least 2024, possibly later, before it is introduced.

The previous government’s Strawman proposals are set out in: Automatic_Enrolment_Strawman_Proposal.

My pension-related papers, articles and documents are listed below.

Pension Documents

Document Date Description Action
29/07/2021 Macro and Micro perspectives on auto-enrolled pensions Read

The conventional wisdom is that members of DC pension plans should invest a high proportion of their savings in equities when young, then shifting towards more secure assets as retirement approaches, and staying in more secure assets in retirement; however, this so-called 'lifestyle' approach means that members lose the expected higher returns from equities just when they would benefit from them most, when their funds are highest.

The smoothed equity approach as set out in the attached paper allows contributors to remain in equities for their entire membership, including all through retirement. Contributions and benefits are calculated, not by reference to prevailing market values, but by reference to average values, where averages are calculated over many years. This allows DC contributors to achieve equity-like returns at volatility levels less than those for funds invested entirely in lower risk assets.

The prize, assuming excess equity returns in future similar to those achieved in the past, is a pension for life approximately double that affordable on a 'lifestyle' approach to investing. The cost of the higher returns is a curtailment of contributors’ freedom in relation to contributions and benefits, which mean that the approach can only be contemplated for auto enrolment.

Does the approach work? If so, does the prize of double the value for money justify the price of limitations on contributors’ freedom? I believe that the answer to both is an unqualified "Yes".

Document Date Description Action
06/01/2021 Paper to Society of Actuaries in Ireland (presented 20 Jan 2021) titled "A New Approach to Auto-Enrolment: Higher Pensions of Half the Cost" Read

The key message of the paper and presentation is that a combined contribution of 7% of earnings (3% employee, 3% employer, 1% state) can deliver higher pensions under auto-enrolment than would be delivered by twice as much under the previous government's 'strawman' proposals. The key ingredients of the proposed approach are:

1: Everything invested in growth assets, from date of joining until death.

2: Pooling of risks and smoothing of returns to minimise volatility.

3: Smoothed returns mean that member's pension account looks just like a high-interest bank account and can be presented as such.

4: The message is simple: money is added to the account when the employee is working, deducted in retirement, interest is added throughout.

5: The simplified structure cuts costs. There is no cliff-edge at retirement, no need for expensive advice on retirement and investment options.

6: There is no such thing as a free lunch. The cost is complete loss of investment freedom, but good flexibility on drawdown options.

7: Optional extra of longevity protection in return for a reduction in return credited to account from age 75.

Document Date Description Action
17/10/2019 Summary description of proposed smoothed approach to auto-enrolment, including longevity protection Read
Document Date Description Action
17/10/2019 Slide showing the higher benefits in retirement from leaving money invested in "real" assets Read
Document Date Description Action
05/06/2019 Supplement to 27 May 2019 paper for Working Group of Society of Actuaries in Ireland. Further analysis of simulation results for auto-enrolment Read
Document Date Description Action
27/05/2019 Paper to Working Group of Society of Actuaries in Ireland on simulation results for smoothed approach to auto-enrolment pensions Read
Document Date Description Action
17/12/2018 Presentation to pensions experts on smoothed equity investment for auto-enrolled pensions Read

On 17 December 2018, the Pensions Authority convened a meeting of pensions experts to discuss the merits of the proposed smoothing approach to auto-enrolment. This is my presentation at the start of the meeting.

The third slide is key. It shows how much pension savers lose (on average) by taking a "lifestyle" approach to investing, i.e. de-risking in the years leading up to retirement by moving funds to low-risk, low-return assets, and then leaving them in such assets throughout their retirement. The title of the slide - "Foot off the gas when fund at its maximum" - says it all. The proposed approach allows contributors to metaphorically keep their foot on the gas for the entire duration of their membership, enabling them to benefit from the expected higher returns on equities/property from the day they start contributing to the day they die.

Document Date Description Action
04/11/2018 Submission to Department of Employment Affairs and Social Protection on smoothed equity investment for auto-enrolled pensions Read

This is my submission to government for a new approach to auto-enrolled pensions. Under the proposed approach, contributors' savings are invested in equities, property and similar "real" assets, both during their employment and after they've retired. These assets should produce higher long-term returns than deposits and bonds, but with a risk of sharp losses in the short-term. No-one likes losing money. The proposed approach protects contributors from the risk of large short-term losses while allowing them to benefit from the higher expected long-term returns. The proposed approach also addresses the risk of contributors outliving their savings.

Document Date Description Action
15/10/2018 Irish government's 2018 'strawman' proposals for auto-enrolled pensions Read
Document Date Description Action
28/02/2018 Article in Irish Broker magazine Read

This magazine article of early 2018 summarises my presentation of 7 February 2018 to the Society of Actuaries in Ireland.

Document Date Description Action
07/02/2018 A New Approach to Drawdown on Group DC Pensions Read

This was the first public presentation of my proposed smoothing approach to pensions, presented to the Society of Actuaries in Ireland in February 2018. It dealt only with the drawdown stage, but I indicated (in slide 68) that the approach would be ideal for auto-enrolment, both pre and post retirement.

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