Cabinet approves auto-enrolment scheme

We're never going to agree on this Colm - we just have fundamentally different investment philosophies.

But that's not really my main point.

The vast, vast majority of folk do not have the necessary knowledge to take a reasoned view on where they should invest their retirement savings. The State has got to take a view for them. Of course they should have the ability to opt out of the default option determined by the State - but really that's a different issue.

The whole idea of a Central Prcessing Agency and a carousel of fund options is bonkers.
 
Sarenco said:
The vast, vast majority of folk do not have the necessary knowledge to take a reasoned view on where they should invest their retirement savings. The State has got to take a view for them. Of course they should have the ability to opt out of the default option determined by the State - but really that's a different issue.

The whole idea of a Central Prcessing Agency and a carousel of fund options is bonkers.
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I accept (reluctantly) your first point that we're not going to agree. (I would be interested however in hearing what your investment philosophy is, so that I can decide whether I agree with it or not).
We are absolutely together however on your last two points. No-one knows where they stand on the risk-return spectrum, not even yours truly. We all want the highest return possible for the least risk, but how can you translate that into a meaningful investment strategy? It's interesting to learn that, in the UK, 99% of NEST contributors opt for the default investment strategy, which delivers 100% cash at retirement. Now, I would like anyone to tell me what's the use of giving people 100% cash at retirement, especially when they've sacrificed God knows how much return to get there, and they then have to start all over again, investing 75% of it for the next 30 years or so?
As to the carousel, bonkers is the word!
 
Codogly said:
If any future government decides to means test the state pension in the future ...they will in effect be shooting themselves in the foot , having a situation where workers who do the right thing and provide for the future by contributing to an occupational pension effectively disqualify themselves from the state pension ... really ... they wont be getting my vote.
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Unfortunately it's all the votes from now (and over the last 20 years too, I guess) up to that point that would put a Government in a position where they'd even have to consider means testing the contributory pension are to blame, not your vote at that point. The inaction in dealing with this 'pensions time-bomb' reflects the lack of focus on this as a major future funding deficit and I don't remember any party setting long term goals for this beyond their own term in office. NPRF (RIP) and 'Rainy Day Fund' (did that ever get a proper name?) were a start but they're nowhere near what's needed.
 
Well, well, well, the Strawman has grown up to be Woodenman and he has scarcely changed in the formative process. Was the consultation purely lip service? About the only ground that is shifting is the tax treatment, and boy did that need changing. Strawman was an SSIA approach with the benefits tax free. I think they have dropped that but they remain rather coy about the howler.
But it is the approach to investments that condemns Woodenman. Colm has proposed a radical solution, obviously too radical. But we should split Colm's approach into two distinct aspects:
1) real assets are the correct investment vehicle not only pre retirement but also substantially into retirement.
2) short/medium term volatility can be substantially smoothed out
I presume it is (2) which is too radical so I will concentrate on (1). Surely nobody believes that 100% in cash at retirement is the correct investment strategy. Yet that naiveté named "lifestyling" has survived from Strawhood to Woodenhood. It is unclear whether default funds will be required to be lifestyle. That would condemn 99% of folk to be in the wrong assets at retirement. So let's presume that providers are allowed to have a more sensible default fund along Colm's lines but that there is a mix of approaches - some providers do lifestyling, others do sensible.
Now we come to the most bizarre childish trait of all to survive - the thrill of the carousel. Except this is no merry ground - on the throw of a dice 99% of people will be directed either "lifestyle" or "sensible". This is sheer nonsense :mad:
Thankfully, I agree with Steve Barret, this will never get off the ground in a small market like Ireland on 0.5% p.a.
Is it too much to hope that by 2022 we will have a sensible Ironwoman?
 
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Brendan Burgess said:
We cannot afford the state pension at its current levels and coverage.

So it will have to be means tested.
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I would be highly surprised if the SPC ever becomes means tested.

I suspect that over time it will fall behind inflation and wages. So that in real terms it is no longer what it is today.

This will be an easy sell in 30 years or so when everyone has an auto-enrolled pension pot built up.
 
Thanks Brendan for posting the links.

I'd appreciate clarification on one point please. Have details of investment options and default funds been made available or is this element of AE still a WIP?
 
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This is still a Work in Progress

I don't think that they will have to decide that until close to the launch.

Brendan
 
Thanks Brendan,

I'm just trying to understand why are posters complaining about the investment aspects if these have not been seen?
 
NoRegretsCoyote said:
I would be highly surprised if the SPC ever becomes means tested.

I suspect that over time it will fall behind inflation and wages. So that in real terms it is no longer what it is today.

This will be an easy sell in 30 years or so when everyone has an auto-enrolled pension pot built up.
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It'll fall behind but they'll have to try to keep the non-contrib at a level that people can survive on, people on non-contrib won't have a pension pot to fall back on. The non-contrib puts a floor underneath the contrib pension.

An alternative to reducing the payment level is to push back the payout age further (non-contrib pension owners perhaps aren't affected as much by pushing out ages- usually just means a move from one means tested payment to another).

But if delaying pension age means delaying access to funds in this new scheme then fewer will contribute. Quite a hard sell right now for a 25 year old to contribute to a scheme paying out at 68, harder again if was delayed to 70+.

To get the savings from contrib pensions, they'll be looking hard at means testing.
 
elacsaplau said:
I'm just trying to understand why are posters complaining about the investment aspects if these have not been seen?
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This is what we're giving out about -
Brendan Burgess said:
A Central Processing Authority (CPA) will be established by the State and will be responsible for sourcing, on a competitive basis via an open tender, a limited number of Registered Providers to provide a defined suite of retirement savings options
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There is simply no need for a Central Processing Authority or an ever changing suite of retirement savings options.
 
While it hasn't been decided yet, they have silly stuff like this which suggests that they don't really understand pension investment

Brendan Burgess said:
  • Each Registered Provider will be obliged to offer a similar range of ‘standard choice’ savings fund options including a default fund for those who elect not to exercise choice;
  • These products may incorporate a ‘lifestyle’ or ‘target date fund’ investment approach and will be defined by reference to risk profile;
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What's intrinsically wrong with a default fund?

What's intrinsically wrong with a "lifestyle" or "target date fund"?

I believe all of the above may be totally appropriate if designed properly. It seems to me that the presumption, in this regard, on this thread is that they will not be designed properly which strikes me as a little unfair.

For example, my current scheme, designed by a very smart lady from Mercer, uses a lifestyle approach as the default investment choice and seems eminently sensible.
 
Hi elacs

Lifestyling has a lovely ring to it - a bit like "pound cost averaging".

Sarenco explains its downsides in this post:

Pension investment strategy

My Irish Life scheme has number of choices Cash fund Corporate bond fund Cautious fund Growth fund Pension for Life fund High growth fund Ethical fund World equities Emerging markets From what I can see with the exception of Cash Fund they all lost a few percent over past 10 days There is...
www.askaboutmoney.com

Brendan
 
elacsaplau said:
What's intrinsically wrong with a default fund?

What's intrinsically wrong with a "lifestyle" or "target date fund"?

I believe all of the above may be totally appropriate if designed properly
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Fully agree.

That's really my main point. The experience in the UK shows that practically everybody opts for the default option. So that's where the focus should be - the design of the default fund!

Almost by definition, the default option will be suboptimal at an individual level (simply because the strategy is not tailored to anybody's individual circumstances). So be it.

There is simply no need to create a supermarket of ever changing fund options - the so-called "carousel" of options. There is no need for a Central Processing Authority. There is no need for Registered Providers.

A state agency should simply act as trustee for the scheme and hire investment managers to execute the agreed default investment strategy. Simples!:)

I actually agree with you that a series of target date funds is probably the way to go. But you could reasonably argue that a fixed-allocation for life is the way forward. Regardless, the State has to make these decisions - there is no point throwing these questions back to the punters.

And, of course, it is impossible to define an appropriate investment stategy before determining the taxation and drawdown mechanics of the scheme.
 
My objections to lifestyle or target date investing are very simple: the end result is significantly lower returns, on average.
Let's suppose I have two just options: one is to invest 100% in equities, the other to invest 75% in equities, 25% in cash. Let's also suppose that equities are expected to outperform cash by 4% a year on average. Some years they'll do much better than cash +4%, some substantially worse. The problem is, we don't know what each year will bring which result. We never will.
Starting from that simple premise, I expect a fund invested 100% in equities to deliver 1% a year more on average than a fund invested 75% in equities, 25% in cash.
If I were considering two unit funds, one of which charged 1% a year more than the other, I would always go for the lower-charging fund (assuming they were indistinguishable otherwise). It's the same with investment options. That's why I try to invest as close as possible to 100% of my pension savings in equities, even at my current age (very close to 70).
My proposed smoothing approach to AE aims to achieve the same outcome for people who don't have the same capacity to live with the higher volatility of equities.
 
Colm Fagan said:
My objections to lifestyle or target date investing are very simple: the end result is significantly lower returns, on average.
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Unless you have a crystal ball, you really can't stand up that statement. At most you can say what would have been (not "is") the average end result over some stated period(s) in some defined markets over some defined historic period.

I know that sounds like pedantry but I think it's important to constantly remind ourselves that we can't accurately predict the future based on past events.

Markets don't have to meet our expectations. The gods laugh at the plans of man, etc.
 
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Sarenco said:
Unless you have a crystal ball, you really can't stand up that statement.
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Tell me which part of my post doesn't stand up. The only part where it's reasonable to hold a different opinion is the assumption that equities will earn 4% more than cash, on average. Some people think it should be more than 4%, some less than 4%, but all are agreed that it must be greater than zero. Otherwise, what's the sense in taking a risk? Better to just leave everything on deposit or in "safe" bonds.
I should add that the words "on average", which appear liberally throughout my post, are very important.
 
Colm Fagan said:
Tell me which part of my post doesn't stand up.
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It was the use of the word "is" (present tense) as opposed to "has been" (past tense) that I found problematic.

i have no difficulty with your "expectations" or "assumptions" - they look perfectly reasonable to me. But ultimately they are projections about an unknowable future.

Again, I'm conscious that this sounds like pedantry but I think it's important to emphasise that we simply don't know what the future holds. We can assume future results but our assumptions may turn out, with hindsight, to have been all wrong.
 
@Colm Fagan

Your claim is something like: "Equities outperform other asset classes over a suitably long time horizon."

You are no doubt right that this has happened for as long as there have been equity markets.

Legt me make an analogy. A lamb born in spring soon notices that the temperature fluctuates day to day, but on average the temperature is getting warmer, and the lamb assumes that this process will always continue.

This is a good working assumption, but completely wrong. The lamb hasn't lived long enough, and there are causal forces beyond its comprehension. Winter will come, and it will be cold.


You are falling into the same trap. You don't have a theoretical model for why equities do better, you just notice that they have done as long as it's been measured. You might be right (neither of us will live long enough to know) but I wouldn't build a national pension scheme on your assumptions.
 
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