Friday 26 April 2019

Richard Curran: I'll believe it when I see it, when it comes to State's pension plan

Minister Regina Doherty doesn’t expect the auto-enrolment pension scheme to be fully operational for another nine years. Photo: Colin O’Riordan
Minister Regina Doherty doesn’t expect the auto-enrolment pension scheme to be fully operational for another nine years. Photo: Colin O’Riordan
Richard Curran

Richard Curran

It goes without saying that the Government's proposals on an auto-enrolment pension scheme for hundreds of thousands of workers, is both welcome and long overdue.

Half the population is making no provision for retirement. Ireland is one of just two OECD countries not to have an auto-enrolment scheme.

Many workers face serious financial challenges when they retire. Auto-enrolment, with the choice of actively opting out, would undoubtedly encourage a lot more people to make savings for their future pension provision.

The bigger question is why it has taken so long to get this far. It is nine years since then minister Seamus Brennan talked about such a scheme to counteract the poor levels of personal saving towards retirement.

As proposed by Minister Regina Doherty during the week, this new scheme would not be fully operational for another nine years.

It has been delayed due to short-term political thinking on one hand and a degree of political cowardice on the other. It was either not thinking about it at all, or being afraid to implement it having thought about it.

If people put 6pc of their gross earnings into an automatically enrolled pension, they will take an immediate hit to their disposable income. What will that do to Vat receipts in the short term as people might spend less? How will it serve to highlight the growing cost of renting or owning a home?

It might make people feel worse off rather than better off, so what does that mean for government support at the polls?

Employers like the idea of pensions in general, but the specifics of an auto-enrolment system could hurt them too. They are looking at making 6pc matching contributions, which is a cost.

And how will a short-term reduction in workers' disposable income feed into future wage demands?

If people feel they have less to spend, they might seek higher wages.

Political expediency says the best way to handle these tricky questions is to endlessly discuss the machinations of such a scheme, but don't actually do anything.

Last September, Taoiseach Leo Varadkar flagged the introduction of an auto-enrolment scheme saying "the issue has been long-fingered for too long".

Varadkar added that he anticipated the first payments being made into those new individually-held funds by 2021. That was a full year ago. One year on, and the government is announcing a "strawman" discussion proposal, which envisages the scheme arriving on a phased basis from 2022.

The pensions industry would love such a scheme. Pension firms backing it is like turkey farmers voting for Christmas, with all of those billions to be managed and invested, accompanied by all of those juicy fat fees.

The industry is right, though, to question a further announcement of a phased scheme that could be nine years away from full implementation.

There is also the issue of cutting existing tax relief on pension contributions of 40pc. Danny Mansergh, head of member communications with Mercer, said: "It seems strange that a policy aimed at increasing the numbers contributing to pensions would expect to do it by reducing tax relief - bearing in mind that the average full time worker is a higher rate taxpayer, eligible under current rules for 40pc relief."

The new plan envisages the state contributing €1 for every €3 put in by workers.

How would that be funded?

However welcome the idea of an auto-enrolment scheme is, there are still many details to be worked out. How many schemes would qualify and how many pension providers would operate it? Surely it would have to be enough to represent genuine competition.

How many investment options would people have to choose from?

How easy will it be to opt out?

In other countries where they have gone for a phased introduction, few opt out at first, but as contributions increase, there is a greater number who choose to exit.

Equally, others choose to opt back in.

Social protection minister Regina Doherty said the only way this plan could be derailed was if there was "something earth-shattering" between now and 2022.

How about a change of government?

How earth-shattering would that be?

Quinn wants his businesses back

Sean Quinn is back. Well, back talking to rallies of local supporters that is. The former billionaire told a gathering of several hundred last Tuesday night that he wanted to buy back his former businesses. He said he could have raised the finances, but has not been able to do a deal under agreements reached between the current shareholders.

His claim that he had been "stabbed in the back" by his former company, implies he had believed he would be able to buy back at least some of the equity in the business.

Quinn Industrial Holdings (QIH) owns the plastics, cement and packaging business of the former Quinn Group.

The owners bought these units for €98m nearly four years ago.

QIH is 88pc owned by US hedge funds Brigade Capital, Contrarian Capital and Silver Point. The remaining 22pc is owned by a group of local businessmen and former Quinn Group management.

The Americans hold the 'A' voting shares and the others hold non-voting 'B' shares. Any chance Quinn believed he had of buying out the Irish shareholders was completely nailed down by the shareholders' agreement.

The agreement rules are completely watertight and specify that if one of the B share owners transfers his shares to an outsider, all of the other managers are legally obliged to inform the US investors as soon as they become aware of it. If such a transfer happens, it can trigger the compulsory purchase of that person's shares by the US investors for a nominal sum - ie basically nothing.

The US investors are sitting pretty as they bought the businesses at a bargain price. They are growing profits and are collecting 10pc interest on the money they have lent the company. This amounted to €16m in the first two years. Hedge funds are always willing to sell, but only for the right price.

If Quinn wants to buy, he and the family will have to write a very big cheque.

Mind you, I still wouldn't bet against the family returning to the business in the future. Meanwhile, the Quinn family are preparing to ramp things up ahead of their legal actions against IBRC and the State.

Expect more megaphone diplomacy.

Tories' poor Brexit poker face

The latest warnings of the implications of a no-deal Brexit coming from British government ministers highlight just how badly the Tories have handled the entire Brexit mess.

It is like they are trying to play a bluff in poker but they just aren't very good at it.

The British government position is that in a no-deal Brexit, the EU (and Ireland in particular) will suffer greatly, but the UK will successfully carve out its own future. The message is "we are prepared to walk away".

If they say a no-deal Brexit would be disastrous for the UK, they will undermine themselves further. So instead, British ministers are engaging in a high-stakes game of bluff - pretending to talk tough when, in fact, they have climbed down on almost every major point in the negotiations so far.

If a deal cannot be reached by the October deadline, both sides will find a way to play for more time.

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