Ireland is in a great place at the moment. The economy is one of the fastest growing in the eurozone, and in 2018, we saw over 1,000 people re-join the workforce every week*. And for once it’s not just Dublin-centric, there was fantastic growth and investment in businesses across the country as well. The positivity is set to continue with the ESRI predicting that strong economic growth is set to continue in 2019.
Perhaps this is one of the reasons why the Government is confident with its ambitious plans for the future pension landscape – in particular with the recent publishing of its auto enrolment strawman. This is timely and welcomed. It is recognised that Ireland is facing a future pensions crisis with lack of coverage being at the fore.
Wait for 2022?
At Zurich we welcome the Government’s proposals, but as they are not due to be implemented until 2022, (at the earliest) this could potentially leave employers and employees in a quandary as to what to do now in the intervening period. Our view is very strongly in favour of taking action immediately. To postpone making decisions about DC plans would be damaging to employees’ retirement plans.
So it’s a case of be mindful of future developments, whilst working within the existing framework to deliver a future ready solution for members. And the good news is that you don’t have to do it alone. At Zurich, we’re working every day with scheme advisors to ensure that employees are best prepared for what the future will bring. And our role, and the role of the scheme advisor, is to guide employers and trustees through the complex area that is the current Irish pension landscape.
Adequate contributions are key to DC
A pension scheme is only good as long as adequate contributions are made, but many employees continue to underfund their pensions. Scheme members should contribute roughly half their age - so if you are 25 years old, your personal contribution combined with that of your employer should add up to 12.5% of your salary.
Zurich, working with scheme advisors, is well-placed to help employers communicate the benefits of DC scheme pension provision to their employees – including those who are not yet members of a pension scheme. Zurich’s unique Connect Portal is tailored to companies and provides a wealth of pension information. This is supported by clear written correspondence and face-to-face dialogue with scheme members, which is the most powerful way to influence people’s pension habits.
Talking to employees, either in groups or on a one-to-one basis, is the best way to explain the flexibility that’s available within a good DC pension offering.
One size doesn’t fit all
While the simplicity of Zurich’s platform is a core benefit for employers, flexibility is an absolute necessity for employees and Zurich has worked hard to marry the two. With our singular focus on DC schemes, we can bundle our offering so we are able to offer administration, record-keeping, investment and governance in one place, which helps keep costs down for the employer or scheme trustees and results in better outcomes for members.
We also offer different investment solutions to suit the various stages of the scheme member’s employment cycle, and this is reflected in our Personalised GuidePath, which offers three degrees of flexibility. The first aspect is the risk level, which can be low, medium or high; the second is the ability to personalise the retirement age; and the third is how to take the retirement benefits.
Such flexibility is important in the DC world as employees no longer work with a ‘job for life’ mentality. They often work with multiple employers and have several pension pots; and may wish to redeem their benefits in different ways depending on their approach to retirement.
DC pension solution
Whether you are responsible for a small company or a large multinational, at Zurich we believe that your organisation could benefit from the support of working in partnership with your scheme advisor.
With one eye on the inevitable introduction of auto-enrolment in the years ahead, we can also assist companies in educating employees on the need for – and benefits of – adequate pension provision. The purpose of a pension scheme is to provide a level of financial security in retirement. To ensure an adequate contribution level, trustees must continually engage with members and we can support them throughout that process.
Indeed, there has been a notable increase in the past twelve months of large employers looking for greater support from their pension provider as they strip out layers of complexity that are essentially an overhang from the DB era. Back then, it made sense to unbundle all the services involved in providing a DB pension scheme with various actuarial, legal and regulatory consultants. In the new era of DC pension provision, it makes sense to bundle services where efficiencies can be achieved and make as much use of your scheme pension provider as possible.
While pension provision might not be an urgent issue, it is an important one. By putting pensions on the long finger, employers risk losing talent to other organisations with better remuneration packages and individuals lose out on the cumulative benefit of compound interest and the outperformance delivered through Zurich’s active fund management approach.
But it doesn’t have to be that way. Zurich, working with scheme advisors, is there to help both companies and their employees.
*Source: Dan O’Brien, Irish Independent, June 2018