Pensions Council rejects Colm Fagan's proposal despite its independent consultant endorsing it

jasdpace@gmail. said:
Just three points for now (.....else I'll be at risk of navigating my own retirement sooner than planned!)
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On your three questions:
1. I don't know what the purpose of the independent valuation was. I share your concerns, especially given the history of the PC's consideration of my proposal in 2021 and 2022 as recounted to Brendan in the other thread, "Why didn't some other country think about smoothed AE years ago?" (Post 7)P - "not feasible to conduct a feasibility study" and dropping it from the agenda without explanation.
We're a long way from C&AG oversight. That's part of the problem. 50k was a ridiculously low budget to investigate a claim that the state could save €1.5 billion a year.
2. Not that I'm aware of.
3. Brian Woods has said that I'm overegging it with my "turfed out" comment. Maybe I am, but that is the current position according to the Draft Bill. Yes, there is a head saying "the Minister may prescribe regulations for a retirement benefits scheme that provides for the drawdown of funds accumulated by an employee in the retirement savings scheme", but there's nothing backing it. We don't know whether it's just words or a genuine commitment.
In trying to decipher which it is, I recall a session on AE in Deloitte's a few years back at which Tim Duggan, the DSP Assistant Secretary in charge of AE spoke. In the course of the discussion, he was asked whether the private sector would have any involvement. He replied to the effect that "You guys will get the business when the pension pots mature". It's also noteworthy that the Bill's title refers to it as a "retirement savings" scheme, not a pension scheme. Finally, the calculations underlying the 14% contribution rate recommended in the Bill assume the purchase of an individual annuity at retirement. All those indicators of the government's intentions are good enough for me.
 
Minister Humphreys' press release said:
It is estimated that a worker on the national average wage contributing consistently for 40 years could build up a savings pot of nearly €750,000, including investment returns, over the course of their working life.
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After inflation of 2% p.a. and annuity rates of say 5% (increasing longevity) that is about €17k pension in today's money.
 
@Duke of Marmalade

A 65-year old non-smoker male can purchase a CPI-linked annuity for 3.7%.

With a €750k pot that’s an inflation-proofed annuity of €28k in 2024 prices.

With a state pension of another €14k that’s an annual income of €42k.

For a couple that’s €84k a year. This is a good standard of living in any universe.
 
Dr Strangelove said:
@Duke of Marmalade

A 65-year old non-smoker male can purchase a CPI-linked annuity for 3.7%.

With a €750k pot that’s an inflation-proofed annuity of €28k in 2024 prices.

With a state pension of another €14k that’s an annual income of €42k.

For a couple that’s €84k a year. This is a good standard of living in any universe.
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The Minister was talking about €750k in 40 years time. I allowed for ECB target inflation of 2% p.a. (do you really believe in that target over 40 years?). Thanks for the correction to an inflation linked annuity price which I had overstated at 5%. Not unreasonable to suggest that increased longevity over 40 years might reduce that rate to, say, 3%. So I would say €17k in today's money is a very generous estimate. More likely €10k.
Anyway why is the Minister putting out a sales pitch that would make a rooky life assurance saleswoman blush?
 
I attach Executive Summary and Conclusions of the independent expert - two pages. Not sure about the increased income tax from future pensions; the Heads suggests that the tax treatment will be very generous, similar to the SSIAs.
 

Attachments

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Duke of Marmalade said:
The Minister was talking about €750k in 40 years time. I allowed for ECB target inflation of 2% p.a. (do you really believe in that target over 40 years?).
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I think the expectation that salaries linearly increase up to retirement is less believable than 2% p.a inflation.

Any income stats I've seen show that typical median income peaks in the 40-50 year age group. If you were to extract public service salaries from those stats - which we could as AE is not targetted for that group - then that income drop post 50 is even higher.

There are many reasons median income drops as people age, some retire, some can't work due to illness, some reduce hours, switch to lower paid careers etc..

They've decades of reliable reports on earnings that show this will happen. But instead they're using higher incomes in 50-65 year old age bracket to make their scheme seem to work.

Age - CSO - Central Statistics Office

www.cso.ie www.cso.ie

Unrealistic projections for the basic AE scheme is one reason they could choose to not look more closely at alternatives.
 
An interesting angle @ashambles They don't actually project that peoples "real" incomes will increase. They only assume that they grow with inflation. Historically, average incomes have increased by more than price inflation due to increased productivity.
They assume in the projections that I have seen that the person earns the average industrial wage throughout their working lives. A more precise approach might be to assume that they earn the average wage for their age as time passes but overall they earn the average industrial wage throughout their working life. This would appear to give a more humped shape than the flat shape assumed. And yes that would tend to overstate the result as whilst the overall amount invested is the same on both methods the flat assumption would mean investment occurs on average earlier. But I think the error is marginal. The more misleading aspect is that the final figure is not deflated to today's purchasing power.
 
Duke of Marmalade said:
Historically, average incomes have increased by more than price inflation due to increased productivity.
They assume in the projections that I have seen that the person earns the average industrial wage throughout their working lives.
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I find these tax and pensions guys absolutely clueless on stuff like inflation and lifetime income profile.

Much simpler if they could say “an average worker will have X times average wages in their pot at 65”
 
We have had two days of Dail debate on the AE Bill. The only reference to Colm's proposal came from Catherine Connolly.
Then we look at England, but we are not told about the opt-out rates. It would be great if we had the opt-out rates somewhere. I come to a different structural basis for auto-enrolment from an expert who wrote to the Department and to the Pensions Council. I thank the Minister for ensuring that a report was carried out. One of the criticisms of the expert's suggestion is that we need maximum participation at all times, and that applies to this scheme as well. We need maximum participation for the scheme to work, to have maximum funds in it. I want to know the opt-out rates on these other schemes.
It's a good point. NEST boasts a lot about its 12 million members but is fairly coy that 60% of them have dropped out and that is on average over just 5 years. Catherine mentioned the independent expert's report but nobody made any issue about the fact that it fully endorsed Colm's proposal and yet was rejected by the PC.
 
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