Country’s brokers demand legal protection for rainy day savings

PIBA – the country’s largest group of financial brokers with 890 member firms – has called for the insertion of a legal protection to safeguard consumers’ pension savings.

The association’s Chairman, Donal Milmo-Penny, said given recent history consumers neeTagsd reassurance.

“People need to know that their pensions are safe and this includes protection from the State itself,” he said.

“At a time when the notional policy was to increase pensions’ take-up the State last year alone took almost €700 million in a levy from the savings of consumers in the private sector, a deficit that will never be returned and will impact on an ongoing basis into the future.   And the National Pension Reserve Fund has been depleted,” he added.

Mr Milmo-Penny said a system of pension auto enrolment which is currently under consideration by the government would be a win- win for consumers and for the State in the long term, with over 50pc of workers without any pension planning in place currently.

He said PIBA supported such a scheme with an option to opt out within a certain timeframe and flexibility to allow for individual advice should consumers wish.  And early access to funds to facilitate house purchase may be a way of encouraging participation.

“How such an auto enrolment system would be structured is absolutely critical. The success of the SSIA scheme and current international practice, particularly that of countries like Australia, New Zealand and latterly the UK have, we believe, much to offer.”

He said in the SSIA scheme consumers could perceive ownership of the investment whereas deductions at source by the State were likely to be perceived as a form of taxation.

He warned of other dangers of a State designed and run auto enrolment scheme.  “There would be a significant development cost to the taxpayer in designing and maintaining the scheme. The NEST system in the UK cost stg 330 million and has a running deficit of stg 70 million.  Such a system is also likely to offer only very conservative investment strategies, given the potential political fallout of short- term volatility, even though pensions are long-term investments.  Under a State controlled system consumers risk being placed and left in unsuitable funds to their long term financial detriment.”

He said for each one per cent a year loss of investment performance from an assumed 6pc, there is a significant reduction in a retirement fund after 25 years.  A three per cent loss of performance can typically shave 30 per cent off a projected retirement fund.