Plan sponsors often have competing priorities when it comes to overseeing the pension plan and meeting their company’s strategic objectives. In Ireland, 67% of plan sponsors surveyed were willing to delegate the selection of specific funds to include/exclude from the default, which could reflect their desire to focus day-to-day work on other matters.
While most respondents globally said that “doing the right thing for my retirement plan’s members/employees” was most important, Ireland and the UK bucked the trend by placing “recruiting and retaining talent” of greater importance. It seems that to Irish employers, the pension scheme is used as a tool to promote working for the company, and meeting retirement objectives comes second.
Room for Improvement
Among Irish plan sponsors, 80% indicated that their members will be able to stop working at retirement age. But they are far less confident about members being able to live as they currently do. Members themselves appear far less sure of what their own retirements will look like.
The increased optimism that plan sponsors displayed could partly be explained by some employers still enforcing compulsory retirement ages. It may be that many members are retiring on the date planned, at the cost of adequacy in retirement. Policymakers should consider measures to support phased retirements and flexibility in order to allow members to accumulate assets for longer.
A Helping Hand
We asked respondents to rank who is most responsible for ensuring that members have an adequate income in retirement. With the exception of the Netherlands, who placed responsibility firstly at the employer’s feet, the consensus is that responsibility lies with the member. In Ireland many plan sponsors believe the employer is equally responsible:
Irish legislation allows for members to purchase an annuity, use income drawdown (approved retirement fund), withdraw a cash lump sum, or a combination of these three at retirement. However, only 13% of plan sponsors surveyed had a clear idea of which option their members would choose at the point of retirement. In addition, savers did not feel fully aware of the options available to them.
There is clearly more scope for education and advice around the retirement options available to members. In addition, we believe that investment strategies should follow a single glide path and landing point that are appropriate for the various options members have at retirement, meaning members do not have to choose what to do with their savings until they are ready.
A Joint Effort
We asked our respondents how much they think members valued different features in their retirement plans:
Elsewhere in the world, respondents believe most of the responsibility in sourcing retirement plan advice should sit with the members themselves. However, our Irish plan sponsors believe “friends and family,” “independent financial advisors” and “the employers” are also important advice sources for their members. People recognize that they need advice and should be comfortable that they can source, understand and trust advice from industry experts.
When it comes to who pays for retirement advice, Irish respondents diverged from the global average, which believes the cost should be borne by the “employee themselves.” In Ireland, 67% said that the cost of advice should be covered by the government.
Policymakers may want to consider communications and education campaigns that help deliver information on retirement options at a wide scale. Beyond this, employers and providers should look to build trust with their members by using simple, consistent language in familiar settings.
Doing Good and Doing Well
All plan sponsors surveyed in Ireland said they felt that it was important to incorporate environmental, social and corporate governance (ESG) considerations into their plan’s investments. However, many plans have not yet taken the step to incorporate ESG in their investment lineup.
In the past, choosing values such as ESG or performance was often presented as a zero-sum game (i.e., driving impact came at the cost of better returns). We believe this is a false choice and that a company’s environmental actions, social behaviors and governance practices can have a meaningful impact on performance. In our survey, only 33% of respondents reported “lower returns” as the key reason for not incorporating ESG to date.[i]
The Irish government’s recently launched “Ireland for Finance” strategy for the development of the international financial services sector to 2025 includes sustainable finance as one of its three “horizontal” priorities.[ii] Recognizing that Ireland has done some significant work in this sector, action points will be identified with a view to delivering improvements that will enable Ireland to increase its global competitiveness in this area.
This strategy will supplement the call for the industry to continue to innovate in products that not only incorporate ESG values, but also offer value for money. We believe ESG index funds can help achieve these goals.
There is still a high degree of confidence that auto-enrolment will be implemented in Ireland.
However, Irish plan sponsors felt that demographic factors such as living longer and the competitive landscape would be the greatest source of change for the pensions environment over the medium term:
These responses are somewhat surprising given the amount of attention that has been given to the pension’s roadmap and pension reforms of late. They may, however, reflect the bruising that government has taken during the consultation process. Matters such as entry ages, delayed state pensions payments, income levels and tax relief are among some of the many reasons the pensions industry in Ireland is unhappy. These responses could also suggest that our plan sponsors feel these reforms are further away than the 2022 deadline.[iii]
[i] State Street Global Advisors, “Building a Core with a Conscience,” 31 May 2018. https://www.ssga.com/defined-contribution/uk/en/articles/2018/building-a-core-with-a-conscience.html
[ii] Government of Ireland, “Ireland for Finance,” 26 April 2019. https://www.gov.ie/en/publication/526a06-ireland-for-finance/
[iii] Irish Association of Pension Funds (IAPF), “Ireland misses 80% of target dates in pension reform plans,” 3 June 2019. https://www.iapf.ie/News/News/?id=108
The views expressed in this material are the views of SSGA Defined Contribution as at 27 September 2019, and are subject to change based on market and other conditions.
All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Investing involves risk, including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
Investing involves risk, including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
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