There was an interesting article in Investment and Pensions Europe magazine the other day. Reporting on an OECD review of pensions in Ireland, the OECD recommended pensions compulsion. They indicated that their view of Auto-Enrolment was that it was second rate and more expensive.
My initial reaction was one of scorn. After all, aren't these OECD bods from Europe somewhere, clearly not British. But having set aside my Britannia prejudices, further thought on their comment suggests they may be right.
Let's deal with the easier one first. Yes, Auto-Enrolment is bound to be more expensive than mandatory plans. All the opting in and opting out results in complex administration and, I would suggest (well and truly wearing my Grumpy Old Pension Men hat), it produces a good income to a lot of providers and administrators. One compulsory system is definitely cheaper.
Now the more difficult argument. Compulsion or Auto-Enrolment? In the end, I think it is more to do with politics than pensions, as is often the case. Thatcher destroyed compulsion. Blair put Frank Field out to grass when Field 'thought the unthinkable' - and it proved to be just that!
Australia, New Zealand and Chile were the countries Field looked at. It works there. It could have worked here. But too late now I think. We have Auto-Enrolment for better or for worse. More expensive yes. But second rate? Not necessarily. We have to face up to extended longevity, to the fact that 'pensions' will never be top of a young persons shopping list and push on through. It has to work.
My initial reaction was one of scorn. After all, aren't these OECD bods from Europe somewhere, clearly not British. But having set aside my Britannia prejudices, further thought on their comment suggests they may be right.
Let's deal with the easier one first. Yes, Auto-Enrolment is bound to be more expensive than mandatory plans. All the opting in and opting out results in complex administration and, I would suggest (well and truly wearing my Grumpy Old Pension Men hat), it produces a good income to a lot of providers and administrators. One compulsory system is definitely cheaper.
Now the more difficult argument. Compulsion or Auto-Enrolment? In the end, I think it is more to do with politics than pensions, as is often the case. Thatcher destroyed compulsion. Blair put Frank Field out to grass when Field 'thought the unthinkable' - and it proved to be just that!
Australia, New Zealand and Chile were the countries Field looked at. It works there. It could have worked here. But too late now I think. We have Auto-Enrolment for better or for worse. More expensive yes. But second rate? Not necessarily. We have to face up to extended longevity, to the fact that 'pensions' will never be top of a young persons shopping list and push on through. It has to work.
Auto-enrolment doesn't have to be second rate, but depending on how the system is designed, it could result in lots of workers falling through the cracks.
ReplyDeleteLuckily, all evidence in the UK so far seems to be that if you back it up with a company-wide advertising blitz, the effort pays off. Smaller companies may not have the will or the funds to do such a thing, which is where a government-sponsored campaign explaining compulsion would be easier.
It's understandable that there's no political will in Ireland to introduce what would essentially be perceived as a tax on employers and workers, but if the government introduces auto-enrolment too soon – or doesn't opt for regular re-enrolment as we've done here in the UK - they could end up with the effort being for naught, as cash-strapped employees, who have already seen austerity cut their salaries, opt out.
That outcome would be nothing short of a disaster, as any reforms are at least a parliament away, and it'd be another few years after that before concrete results were known. The government would have wasted almost a decade when various administrations have been discussing since 2008 how to increase participation.
If you want to talk about radical proposals, you should look at the suggestions in the OECD report on Ireland (thanks for the link, by the way!) to change the current pay as you go public sector fund into a fully-funded scheme, or at least a nominal DC scheme.
Thanks Jonathan. On the face of it the OECD recommendations make (some) sense. But they don't allow for what is already in place, nor for the economic situation in Ireland. Never a clean sheet of paper in sight!
ReplyDelete