A panel of international experts discuss common challenges managing pension funds to identify what the UK can learn from overseas and vice versa

IMG_0114

Demographic trends

Increasing life expectancy is a key issue for pensions provision in Ireland, as it is in the UK, said Eunice Dreelan, director of investment development at Irish Life Investment Managers.

But in the Netherlands, one of the ‘great’ recent reforms has seen the retirement age linked to the demographic shift so that someone entering the labour market now can expect to retire at 72, said Gerard Riemen, managing director of the Federation of the Dutch Pension Funds.

DB vs DC

In Ireland, for the first time ever there are more private sector workers in DC schemes than in DB, said Dreelan. This is despite the fact a ‘second pillar scheme’, or pension contributions on top of those given to the state fund, is not mandatory. But a big challenge for the country is that only 50% of the population is covered for retirement, Dreelan added.

In Ireland, for the first time ever there are more private sector workers in DC schemes than in DB”

In the Netherlands, a key challenge is to identify an approach which is neither ‘pure DC’ nor ‘pure DB’, said Riemen. The Dutch do not like DC but realise that DB is not affordable, he said. “How can we come to the middle of the road?” he asks.

Auto enrolment

Auto enrolment, legislated for in the UK, ‘could be interesting’ in the Netherlands, where it is being weighed up whether to make participation in retirement savings for the self-employed mandatory, said Riemen.

In Ireland, 60% of individuals are hired by small firms, making auto enrolment difficult to implement, said Dreelan.

Meanwhile Australia’s historic debate over whether and how to implement auto enrolment has ended. By making retirement savings compulsory the country has managed to achieve 91% coverage with contribution rates of 9.5%, said David Harris, managing director of TOR Financial, who has experience of several international pensions markets.

Australia’s historic debate over whether and how to implement auto enrolment has ended”

In the US, debate continues on how to achieve greater pensions coverage, said Stephen Utkus, asking whether the UK’s reforms could set an example elsewhere, in particular the US and Japan.

In New Zealand, only the minimum level of contributions required by the government has been signed up to, said Harris. This has resulted in a “levelling down effect” of occupational schemes, with contributions into DC schemes falling from 18% to 7%, he added. As a result, New Zealand has had to introduce a ‘reenrolment’ process.

In the US, debate continues on how to achieve greater pensions coverage”

In South Africa, pension fund contributions are compulsory but legislation has led to a perverse incentive structure whereby individuals can receive their DB pension entitlement in full by changing job, said Harris. This means individuals with debt can leave their job to pay off debt through their retirement fund.