TASC Seminar on Auto-Enrolment

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Colm Fagan

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AAM readers may be interested in a seminar on the proposed auto-enrolment scheme that's being held on Tuesday next, 28th March, in Buswell's Hotel, from 11 to 1.
There are some high-profile speakers. I'll be presenting my proposal for a smoothed equity approach, my first in-person opportunity to present on it in Ireland.
Here's the link: https://www.eventbrite.ie/e/assessi...nrollment-pension-scheme-tickets-566682722277
 
Interesting discussion this morning.

There were about 40 people present and most of those who spoke supported Colm's proposal or at least called on Tim Duggan who heads the implementation to arrange an independent study of it. Such people included myself, Rosheen Callender and Donal de Butleir.

Here are Colm's slides but most of you know this stuff before if you have been following it.

What I found a bit frustrating was that most of the discussion could take place any time after the system is set up and running e.g. The minimum age, the minimum salary and even my own proposal that a worker could borrow the deposit for their home from their own pension fund.

However, if Colm's proposal is not implemented from the start, it will be very difficult to do so afterwards.

Brendan
 
Boss, I am sure Colm was pleased by your own very fulsome demand for an independent review of his proposals. On the house purchase thing that I know has been a long standing focus of your own some argued that this was a disaster for NZ's Kiwi-saver AE scheme; I don't know enough about it to comment.
Tapping into my own current focus they don't seem to have a clue what they mean by "lifestyling" which will be a requirement for the default fund. If they opt for a 20 year glide path, as is indicated by the Pensions Authority as being totally acceptable, they will be faced with this issue in a non-negligible volume from Day One.
It is reminiscent of the obsession to "Get Brexit Done" and put details like the NI Protocol on the long finger.
In fact Tim Duggan of the DSP argued forcibly that all aspects of drawdown can be put on the long finger, he seems to be in firm "Get Brexit Done" mode.
One thing he did insist upon was that eventual drawdown will be accommodated within the CPA run scheme and employees will not be dumped at the mercy of the pensions industry at retirement. This is somewhat at variance with earlier commitments from him that the industry can look forward to rich pickings from retiring AE contributors.
One disappointment of this morning's discussion was the high focus by many participants on the €20k and age 23 thresholds, which kinda misses the big picture. I think Duggan did do well here in justifying these thresholds or at least retaining the €20k threshold,
 
Thanks Brendan,

Are Tim Duggan's slides available?

Also, what was said in relation to your "housing" proposals?

What did FitzGerald have to say for himself?
 
I'm far from an expert but this seems like a superb piece of work to me. Well done to Colm, and to Brendan for supporting it.
It seems like a no-brainer but will I suppose meet resistance from the "not invented here" mentality of government AND the vested interest of the pension industry.
What chance of it prevailing, do you think?
 
Duke of Marmalade said:
On the house purchase thing that I know has been a long standing focus of your own some argued that this was a disaster for NZ's Kiwi-saver AE scheme; I don't know enough about it to comment.
Click to expand...

But it's a completely different thing.

In New Zealand , you can withdraw your entire fund to buy a house. I would be opposed to that.

I am not suggesting reducing the size of the fund. I am suggesting that the fund can lend the member the money for the deposit on the house. It remains an asset of the fund. It's just not in equities - it's in a loan to the member.

My proposal would lead to much higher participation in AE.

Brendan
 
Duke of Marmalade said:
One disappointment of this morning's discussion was the high focus by many participants on the €20k and age 23 thresholds, which kinda misses the big picture.
Click to expand...

Absolutely. Get the system up and running. These details can be varied at a later stage. There is almost no point in discussing them now. But people are happier dealing with stuff like this rather than the big picture.

Brendan
 
Duke of Marmalade said:
It is reminiscent of the obsession to "Get Brexit Done" and put details like the NI Protocol on the long finger.
In fact Tim Duggan of the DSP argued forcibly that all aspects of drawdown can be put on the long finger, he seems to be in firm "Get Brexit Done" mode.
Click to expand...

I was on his side on this.

A lot of people want a system for the self-employed from the start. I think it's better to get the employee system done and then either adapt it, or set up a new one for the self-employed.

Likewise, on the drawdown, there will be six years before anyone draws down from the system so they have time to figure out the drawdown system. Those decisions do not need to be made now. They should have an idea of what the drawdown will be like.

It's the salami approach. Deal with it in chunks instead of trying to solve all the issues at the same time.



Brendan
 
As I understand it, currently employees/employers have two choices of retirement schemes. Either 1.5 times final salary tax free lump sum + annuity or 25% of fund tax free + ARF/Annuity. At least tell us which it is. Also tell us the lifestyling choice of the default fund.
 
Another point raised by many of the speakers was that the pensions industry would be scalping the customers and that the charges would be very high.

Colm's scheme would have much lower charges.

Brendan
 
Brendan Burgess said:
A lot of people want a system for the self-employed from the start. I think it's better to get the employee system done and then either adapt it, or set up a new one for the self-employed.
Click to expand...
Brendan, I agree with you on that ....
Brendan Burgess said:
Likewise, on the drawdown, there will be six years before anyone draws down from the system so they have time to figure out the drawdown system.
Click to expand...
... but I don't agree with you on this.
As I said in the course of my presentation - possibly an exaggeration, but not too much - it's like designing a car without brakes and saying that the brakes will be added when the car is on the road.
My first try at a smoothed approach focused exclusively on post-retirement. That was back in 2018! The idea was that retirees from DC schemes (structured pre-retirement as they are at present) could invest the retirement proceeds in a smoothed fund, which would have many of the attributes of the smoothed AE scheme I'm now advocating. However, I realised that it wouldn't work, that it would be impossible to eliminate anti-selection or to reduce it to an acceptable level. By "anti-selection" I mean members opting for the smoothed retirement option when smoothed value was less than market value but opting not to go into it if smoothed value was above market value. (I think I've got the logic right) That would destroy the economics of the scheme. It only works in an AE context. That's when I changed course.
 
Hi @Brendan Burgess . Thanks for that. You can add that my presentation starts at 54:00 and your contribution at 1:35:45.
You made a valid point in your contribution that some of the detail of AE can be finalised at a later stage, but a decision is required at the very start on the smoothed approach.
Unfortunately, Tim Duggan didn't answer your question, only the semi-related one of whether in-scheme drawdown would be in place by the time people retire.
He claimed that future innovation would make everything right. In my presentation (slides 9, 10 11), I likened that to designing a car without brakes, and saying that brakes would be in place by the time it came to stopping the car.
The current discussion (mainly on this forum) on the flaws in lifestyle investing (at the heart of the DSP's proposed approach) shows how right I was to highlight the impossibility of welding a post-retirement solution to a pre-retirement product.
To recap, the "lifestyling" approach of shifting members' funds to 75% bonds and 25% cash by retirement works wonderfully if they're going to apply 75% to buy an annuity, taking a 25% cash lump sum, but it's a disaster at times like this, when interest rates have risen sharply over a short period, if the member wants to do something different. I was alerted recently to a case of someone who was defaulted into this type of fund a year before retirement and lost over 20% due to the sharp rise in bond yields and the resulting fall in value.
That just couldn't happen with the smoothed approach.
 
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