A couple of thoughts on this.
Questions trigger a mental reflex known as “instinctive elaboration.” When a question is posed, it takes over the brain’s thought process. And when your brain is thinking about the answer to a question, it can’t contemplate anything else.
Like for example asking “is this even the right question to ask?”
Everyone rushes off to offer their opinion on auto-enrollment rather than taking a step back and asking a question first.
Is this even the right policy agenda?
1) There is no logical reason why contributions should only be allowed to be made by “workers” either employed or self- employed and there should be no minimum age to join otherwise we are throwing away 22 years of compounding.
This is elementary mathematics and effectively removes the need to force some people to contribute at all and this would still achieve the same policy objective.
There is no reason at all why the solution to the problem should only be couched in terms of traditional employer employee contribution and state incentives.
As Duke notes above, the change in the ratio of workers to retired makes this effectively an inter-generational issue since fewer people in work will have to support more people in retirement there needs to be a social contract between the generations.
I did a quick calc during the session.
If granny makes the current maximum CAT C exemption when junior is born today assuming an average 5% nominal then Junior will have €448,462 in their pension fund at age 68.
That more or less effectively solves the issue.
To put this into perspective the estimate of the current capitalization value of the State Pension is around €400,000.
To get the same pension fund under the same assumptions a 22 year old today would need to save €2,658pa for their whole working life.
Give a CAT exemption of up to say €25,000 to anyone making a contribution to a pension for a minor. This amounts to the same effective state contribution of 33% upfront but allows another possible source of contributions and gives longer for compounding to have the most effect.
The real economics of this problem have nothing to do with the proposed solution of auto-enrollment ( which is largely born out of Richard Thaler’s research on behavioral nudges)
The essence of the problem is born out of the basic economics of household budgets; cost of housing and cost of child care prohibits saving for ones own retirement.
Why not offer a tax incentives for child care or build more houses - either would have similar effects as auto enrollment.
2) Tax relief for employers
The employer will be able to offset the costs of their contributions against corporate tax. This should be against employer PRSI.
Let's say that I didn't pay much Corporation Tax last year and ironically the main reason was because I hired a new employee. There should be a direct link between the cost to the employer and the tax relief.
Questions trigger a mental reflex known as “instinctive elaboration.” When a question is posed, it takes over the brain’s thought process. And when your brain is thinking about the answer to a question, it can’t contemplate anything else.
Like for example asking “is this even the right question to ask?”
Everyone rushes off to offer their opinion on auto-enrollment rather than taking a step back and asking a question first.
Is this even the right policy agenda?
1) There is no logical reason why contributions should only be allowed to be made by “workers” either employed or self- employed and there should be no minimum age to join otherwise we are throwing away 22 years of compounding.
This is elementary mathematics and effectively removes the need to force some people to contribute at all and this would still achieve the same policy objective.
There is no reason at all why the solution to the problem should only be couched in terms of traditional employer employee contribution and state incentives.
As Duke notes above, the change in the ratio of workers to retired makes this effectively an inter-generational issue since fewer people in work will have to support more people in retirement there needs to be a social contract between the generations.
I did a quick calc during the session.
If granny makes the current maximum CAT C exemption when junior is born today assuming an average 5% nominal then Junior will have €448,462 in their pension fund at age 68.
That more or less effectively solves the issue.
To put this into perspective the estimate of the current capitalization value of the State Pension is around €400,000.
To get the same pension fund under the same assumptions a 22 year old today would need to save €2,658pa for their whole working life.
Give a CAT exemption of up to say €25,000 to anyone making a contribution to a pension for a minor. This amounts to the same effective state contribution of 33% upfront but allows another possible source of contributions and gives longer for compounding to have the most effect.
The real economics of this problem have nothing to do with the proposed solution of auto-enrollment ( which is largely born out of Richard Thaler’s research on behavioral nudges)
The essence of the problem is born out of the basic economics of household budgets; cost of housing and cost of child care prohibits saving for ones own retirement.
Why not offer a tax incentives for child care or build more houses - either would have similar effects as auto enrollment.
2) Tax relief for employers
The employer will be able to offset the costs of their contributions against corporate tax. This should be against employer PRSI.
Let's say that I didn't pay much Corporation Tax last year and ironically the main reason was because I hired a new employee. There should be a direct link between the cost to the employer and the tax relief.
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