Perspectives on Retirement Saving Policies in Ireland

11/10/2005

Perspectives on Retirement Saving Policies in Ireland

John McHale (Queen's University, Ontario)
Embargo: 00:01 a.m. Tuesday 11 October, 2005.

With many of us are putting aside less for our retirements than we know we should, the combination of rapid average earnings growth, longer life spans, the shift from defined-benefit to defined-contribution pension plans, and a flat-rate state pension system, threaten significant drops in living standards for many Irish households at retirement. This paper examines recent Government policy initiatives aimed at increasing collective and individual saving, including the National Pensions Reserve Fund, tax-favoured Personal Retirement Savings Accounts, and the Special Savings Incentive Accounts scheme.

The paper argues that these initiatives, though innovative and helpful, are unlikely to be enough. Building on findings from recent behavioural economics research, a proposal for a new policy instrument called Universal Retirement Savings Accounts is set out. A key element of these accounts is a default contribution that rises over time but from which people are free to opt out. It is argued that the accounts hold the promise of significantly increasing provision for retirement without resorting to heavy-handed government compulsion of mandatory pension requirement.