irish institute of pensions management · malaysia employees will have access to private retirement...
TRANSCRIPT
1
31 January 2013
Irish Institute of Pensions Management The Pension Condition Global and Local Presented by Rachael Ingle
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31 January 2013
Agenda
The international perspective
Key Messages on the Irish Economy and the
Public Finances
Irish Retirement Issues
To protect the confidential and proprietary information included in this material, it may not
be disclosed or provided to any third parties without the approval of Aon Hewitt.
The International Perspective
January 2013
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31 January 2013
Adapt pensions to demographic trends—“Less for more“
Increase retirement age
Making early retirement
more difficult
Cut indexation
Increase contributions
Lower conversion rates
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31 January 2013
Adapt pensions to long-term demographics—Reforms
Encourage older workers
to continue working
Other pension reform –
reform of state pension
Other pension reform
Considering
significant reform
Spain
Comprehensive pension
reform announced after
elections
Brazil
Government is
considering change
to benefit formula for
social security benefit
Slovac Republic—
Proposed several
changes to old age
retirement system
South Africa
Consultations on creation of
a National Social Security
Savings Fund have started
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31 January 2013
Economic Recession
„save Italy“
austerity
package
Review of viability of social
security system every five years
using sustainability factor and cut
in early retirement benefits
Hungary
Complete abolition
of 2nd pillar
Austerity
Quebec and
Ontario have
extended
pension
funding relief
Switzerland—
Guidelines
delaying full
funding
requirements Funding or solvency
relief
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31 January 2013
Limit risks
Insuring safety for
pensions
New plan designs
Norway
Proposal for hybrid plan
with predictable costs
Increased
contributions to
Pension
Guarantee
Funds
Ireland
New funding
standard
Belgium
Externally fund top hat
pension promises
New Brunswick
introduces
„shared risk
pension plans“
(collective DC)
Buy outs
GM will settle about $26 billion in
pension liabilities for salaried
retirees and beneficiaries by the
end of 2012. Ford plans to offer
lump sum payments to about
90,000 retirees, beneficiaries and
deferred vested participants
Netherlands
Draft reform
for 2nd pillar
plans
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31 January 2013
Encouraging (voluntary) employee savings
Poland
Individual Pension
Insurance Account
Turkey
Legislation amending
Individual Pension Savings
and Investment System
Legislation of
auto-enrollment
in DC plans
Quebec
introduces
Voluntary
Retirement
Savings
Plans
Thailand
Proposal to allow
employees to make a
higher contribution
than employers
Shanghai
plans to pilot
tax-deferred
pension plan
for individuals
Proposed auto-
enrollment for
Pooled
Registered
Pension plans
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31 January 2013
Changes to DC plans
Austria
Life-cycle option in
DC plans
Israel
Cap on annual
management fee
of providers
Malaysia
Employees will have
access to private
retirement schemes by
September 2012
Auto enrollment
provisions in DC
plans
Pension Regulator issued
materials to help providers,
trustees and employers
deliver good outcome for
retirement savers from DC
pensions
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31 January 2013
Health care topics
Confirmation
of health
care reform
of Obama
Extending
health care
to retirees
Germany
High inflation of costs of
private medical
Netherlands
Charge for
going outside
network
Switzerland
Public vote on
introducing networks
Qatar
Introduce
social health
insurance
system
Spain
Prescription
drug costs
increase for
participants
Philippines
Increase in
premiums
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31 January 2013
European Pensions round-up
Pan-European developments
IAS19 changes from 2013
Solvency II for pensions – potential increase in pension funding requirements
More organisations starting Pan-European pension funds
Increased pressure on state pension systems
(with many state pension ages due to increase)
Dramatic changes in many countries
Pension liabilities increasing due to lower bond yields
and increased life expectancy
Country snapshots (for sample countries)
UK - Auto-enrolment; restrictions on pension contributions for high earners;
pressures on funding valuations; increased use of contingent assets;
schemes closing to future accrual
France - Increased taxation on pension plans and early retirement programmes
Germany - Changes to local balance sheets following new accounting changes; general
move away from defined benefit
Netherlands - Increase to state pension age; dealing with deficits; decisions
on pension increase levels and even reductions to accrued benefits, consolidation of DB Plans
Norway – Changes to state benefits to impact retirement patterns and
future DB scheme design
Switzerland - Increased pressure on pension funds from increased life expectancy
To protect the confidential and proprietary information included in this material, it may not
be disclosed or provided to any third parties without the approval of Aon Hewitt.
KEY MESSAGES ON THE ECONOMY AND THE PUBLIC FINANCES Economic & Fiscal Policy Divisions
Department of Finance 16th January 2013
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31 January 2013
FISCAL DEVELOPMENTS
Policy is restoring sustainability to the public
finances
Latest fiscal data show we are on track to meet
deficit limit…
Stabilising the debt-to-GDP ratio is crucial…
Reforming the fiscal architecture to ensure fiscal
discipline over the cycle…
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31 January 2013
Banking And Financial Services
All Troika targets met after the 8th review…
Reconfiguration of the banking system continues…
Deleveraging targets being met…
Credit Union restructuring…
Reduction in level of state support…
Personal insolvency …
SME lending …
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31 January 2013
Economic Developments
The economy returned to growth in 2012…
The outlook is further modest growth this year...
Recovery to gain ground next year...
Inflation will remain relatively moderate…
Stabilisation but no significant improvement in the
labour market is expected in the short-term…
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31 January 2013
Medium term economic and Fiscal Outlook
Medium-term growth potential is strong…
Medium-term forecast is for GDP growth of 2.7% per
annum…
But Risks…
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31 January 2013
“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015
Activity
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
2012 2013 2014 2015
Year
Pe
rce
nta
ge
GDP growth
GNP growth
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31 January 2013
“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015
Labour Market
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2012 2013 2014 2015
Year
Pe
rce
nta
ge
Employment
unemployment,%
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31 January 2013
“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015
Prices
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2012 2013 2014 2015
Year
Pe
rce
nta
ge
HICP inflation
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31 January 2013
“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015
External Trade
0%
1%
2%
3%
4%
5%
6%
2012 2013 2014 2015
Year
% o
f G
DP
exports
current account
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31 January 2013
“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015
Public Finances as % of GDP
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
2012 2013 2014 2015
Year
% G
DP
115%
116%
117%
118%
119%
120%
121%
122%
general government balance
general government primary
balance
general government debt
To protect the confidential and proprietary information included in this material, it may not
be disclosed or provided to any third parties without the approval of Aon Hewitt.
Irish Retirement Issues
January 2013
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31 January 2013
Developments in Ireland
Economic downturn
Increasing projected retirement needs
Substantial market declines and volatility
Falling Bond yields
Dramatic move away from DB Plans
Employees reducing voluntary contributions
Uncertainly around legislative/regulatory mandates for fee disclosure
Questioning of the worth of pension savings
Increasing health care costs
Increasing personal taxation
Greater regulation
Increasing complexity
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31 January 2013
Government reactions to these Conditions
Government Proposals
Raise taxes for pensioners and for those employees with potential pension income greater than €60,000pa
Raise State Pension Age from 2014
Temporarily allow AVC withdrawals with marginal rate tax penalty up to 30 percent (will there be a
maximum?)
Temporarily apply the pensions levy ceasing in 2014
CARE Plan for new public sector hires
Tax on imputed distribution increased
Infrastructure projects considered
Tax Free Lump Sum – not all tax free!
Tax relief unchanged
No Change in State pension
Additional Focus
Auto enrolment in DC vehicle
Anticipated action on fees
OECD report on pension provision
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31 January 2013
Employer Reactions to Current Conditions
Increase member contributions
Reduce accrual rate
Change normal retirement age
Change pension increases
Freeze or cap pay growth
Make certain elements of pay non-
pensionable
CARE (revaluation rates CPI-linked, capped
at (say) 2.5% p.a. fixed)
Cash / retirement balance
Nursery schemes
Final salary on earnings below agreed
amounts, DC on earnings above
Restructure DC contributions
Profit related contributions
Guarantees/underpins on annuities/benefits
Consideration of vehicle
Section 50
Close to future accrual
Wind up
Wealth management
Collective DC
DC conditional on retaining final salary for
past service from frozen pay growth!
Reduce or suspend DC contributions!
Mortality adjusted benefits
Conditional indexation on CARE
Pension sabbaticals
Pan European DC
Reduce death/ill-health benefits
Variants on final
salary
Hybrid
DC
Other ideas
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31 January 2013
Member reaction to current conditions
Is it worth it?
Do I need to become a tax expert?
Can I get access to my pension?
Help me with
– Clear, concise messaging
– Compelling, relevant information with specific
action steps
– Unbiased guidance
– State-of-the-art tools and resources
“Big-picture” view of retirement
Better financial outcomes
Flexible financial planning solutions
Looking for certainty of expectations
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31 January 2013
My Point of View
Educate Children
– Introduce retirement and financial management education in schools
– Make it simple
Stay in the Game
– Individuals are not saving enough or early enough
– Government need to actively encourage pensions
Push Greater Trustee/Employer Responsibility
– Make decisions that are in the best interest of employees (recognise the importance of default)
– Unbundle fees so employers can clearly see and manage cost
Engage Government, Companies, Employees and Unions in the Dialogue
– Orderly transition from Final Salary Plans
– Employees want/need help planning for retirement
– Recognise flexibility and variety of employee needs
– Continue to incentivise saving for retirement
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31 January 2013
Ireland Round Up
Whats Done
Adapt Pension to long term demographic reform
– Increase in retirement age
– CARE Plan for public sector
Economic Recession
– Troika – austerity programme
– Pensions levy – ending 2014
– Pensioner USC increased
– SFT/PFT
Limit Risk
– New funding standard deadline
– Introduce risk reserves
– Sovereign annuities
Encourage voluntary saving
– Access to AVCs
– ARFs for all DC savings
Changes to DC Plans
– Charges report and consultation
Whats left to be done
Adapt Pension to long term demographic reform
– Comprehensive Public sector pensions review
– Implementation of increase in retirement age
– Encourage older workers to continue working
– Transparent Charges
– OECD report
Economic Recession
– Extension in pension funding proposal deadline?
– Reduce risk reserve to 0%?
Limit Risk
– Change in priority orders?
– Reduce statutory revaluation?
– MFS priced off other bonds?
Encourage voluntary saving
– Auto enrolment?
– Assurance that tax relief will remain untouched?
– More thoughtful use of Early drawdown?
– Market pensions positively
Changes to DC Plans
– Life cycle
– Target date funds
– Default critical
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31 January 2013
Reinvigorating the Irish Economy
Scheme funding
1. Allow smoothing of assets and liabilities
2. Stop linking funding to German yields;
Other than sovereigns, consider alternative
‘low-risk’ benchmarks such as corporate bonds
3. Give a 3 year employer contribution
holiday
4.Introduce debt on employer regs
Early access to pension savings
1.Allow early access to the tax-free lump sum
2. Facilitate individuals to get access at defined
times through a pension wrapper
3. Allow everyone to disinvest 10% of pension
savings with a 20% tax charge (up to €50k)
Investment
1.Get NTMA to issue mortality bonds
2. Offer extra tax relief on ‘good’ investments,
such as infrastructure
3.Facilitate investment in certain private
equity firms – Government to underwrite first
20% of losses
4. Pension funds to lend directly to a small
business bank to get capital to businesses
Government
1. Facilitate merger of small to mid size DB/DC
plans to improve governance, cost, compliance
and investment efficiencies
2 .Steal all the assets of the State Plans (OOPS –
already mostly done!)
3. Retire Slowly
If the Taoiseach asked
me to help as Pensions
Minister would I….?
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31 January 2013
THE Answer
H =
A
E
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31 January 2013
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