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31 January 2013

Irish Institute of Pensions Management The Pension Condition Global and Local Presented by Rachael Ingle

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31 January 2013

Agenda

The international perspective

Key Messages on the Irish Economy and the

Public Finances

Irish Retirement Issues

To protect the confidential and proprietary information included in this material, it may not

be disclosed or provided to any third parties without the approval of Aon Hewitt.

The International Perspective

January 2013

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31 January 2013

Adapt pensions to demographic trends—“Less for more“

Increase retirement age

Making early retirement

more difficult

Cut indexation

Increase contributions

Lower conversion rates

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31 January 2013

Adapt pensions to long-term demographics—Reforms

Encourage older workers

to continue working

Other pension reform –

reform of state pension

Other pension reform

Considering

significant reform

Spain

Comprehensive pension

reform announced after

elections

Brazil

Government is

considering change

to benefit formula for

social security benefit

Slovac Republic—

Proposed several

changes to old age

retirement system

South Africa

Consultations on creation of

a National Social Security

Savings Fund have started

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31 January 2013

Economic Recession

„save Italy“

austerity

package

Review of viability of social

security system every five years

using sustainability factor and cut

in early retirement benefits

Hungary

Complete abolition

of 2nd pillar

Austerity

Quebec and

Ontario have

extended

pension

funding relief

Switzerland—

Guidelines

delaying full

funding

requirements Funding or solvency

relief

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31 January 2013

Limit risks

Insuring safety for

pensions

New plan designs

Norway

Proposal for hybrid plan

with predictable costs

Increased

contributions to

Pension

Guarantee

Funds

Ireland

New funding

standard

Belgium

Externally fund top hat

pension promises

New Brunswick

introduces

„shared risk

pension plans“

(collective DC)

Buy outs

GM will settle about $26 billion in

pension liabilities for salaried

retirees and beneficiaries by the

end of 2012. Ford plans to offer

lump sum payments to about

90,000 retirees, beneficiaries and

deferred vested participants

Netherlands

Draft reform

for 2nd pillar

plans

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31 January 2013

Encouraging (voluntary) employee savings

Poland

Individual Pension

Insurance Account

Turkey

Legislation amending

Individual Pension Savings

and Investment System

Legislation of

auto-enrollment

in DC plans

Quebec

introduces

Voluntary

Retirement

Savings

Plans

Thailand

Proposal to allow

employees to make a

higher contribution

than employers

Shanghai

plans to pilot

tax-deferred

pension plan

for individuals

Proposed auto-

enrollment for

Pooled

Registered

Pension plans

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31 January 2013

Changes to DC plans

Austria

Life-cycle option in

DC plans

Israel

Cap on annual

management fee

of providers

Malaysia

Employees will have

access to private

retirement schemes by

September 2012

Auto enrollment

provisions in DC

plans

Pension Regulator issued

materials to help providers,

trustees and employers

deliver good outcome for

retirement savers from DC

pensions

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31 January 2013

Health care topics

Confirmation

of health

care reform

of Obama

Extending

health care

to retirees

Germany

High inflation of costs of

private medical

Netherlands

Charge for

going outside

network

Switzerland

Public vote on

introducing networks

Qatar

Introduce

social health

insurance

system

Spain

Prescription

drug costs

increase for

participants

Philippines

Increase in

premiums

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31 January 2013

European Pensions round-up

Pan-European developments

IAS19 changes from 2013

Solvency II for pensions – potential increase in pension funding requirements

More organisations starting Pan-European pension funds

Increased pressure on state pension systems

(with many state pension ages due to increase)

Dramatic changes in many countries

Pension liabilities increasing due to lower bond yields

and increased life expectancy

Country snapshots (for sample countries)

UK - Auto-enrolment; restrictions on pension contributions for high earners;

pressures on funding valuations; increased use of contingent assets;

schemes closing to future accrual

France - Increased taxation on pension plans and early retirement programmes

Germany - Changes to local balance sheets following new accounting changes; general

move away from defined benefit

Netherlands - Increase to state pension age; dealing with deficits; decisions

on pension increase levels and even reductions to accrued benefits, consolidation of DB Plans

Norway – Changes to state benefits to impact retirement patterns and

future DB scheme design

Switzerland - Increased pressure on pension funds from increased life expectancy

To protect the confidential and proprietary information included in this material, it may not

be disclosed or provided to any third parties without the approval of Aon Hewitt.

KEY MESSAGES ON THE ECONOMY AND THE PUBLIC FINANCES Economic & Fiscal Policy Divisions

Department of Finance 16th January 2013

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31 January 2013

FISCAL DEVELOPMENTS

Policy is restoring sustainability to the public

finances

Latest fiscal data show we are on track to meet

deficit limit…

Stabilising the debt-to-GDP ratio is crucial…

Reforming the fiscal architecture to ensure fiscal

discipline over the cycle…

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31 January 2013

Banking And Financial Services

All Troika targets met after the 8th review…

Reconfiguration of the banking system continues…

Deleveraging targets being met…

Credit Union restructuring…

Reduction in level of state support…

Personal insolvency …

SME lending …

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31 January 2013

Economic Developments

The economy returned to growth in 2012…

The outlook is further modest growth this year...

Recovery to gain ground next year...

Inflation will remain relatively moderate…

Stabilisation but no significant improvement in the

labour market is expected in the short-term…

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31 January 2013

Medium term economic and Fiscal Outlook

Medium-term growth potential is strong…

Medium-term forecast is for GDP growth of 2.7% per

annum…

But Risks…

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31 January 2013

“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015

Activity

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2012 2013 2014 2015

Year

Pe

rce

nta

ge

GDP growth

GNP growth

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31 January 2013

“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015

Labour Market

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014 2015

Year

Pe

rce

nta

ge

Employment

unemployment,%

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31 January 2013

“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015

Prices

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

2012 2013 2014 2015

Year

Pe

rce

nta

ge

HICP inflation

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31 January 2013

“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015

External Trade

0%

1%

2%

3%

4%

5%

6%

2012 2013 2014 2015

Year

% o

f G

DP

exports

current account

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31 January 2013

“SNAPSHOT” OF THE IRISH ECONOMY 2012-2015

Public Finances as % of GDP

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

2012 2013 2014 2015

Year

% G

DP

115%

116%

117%

118%

119%

120%

121%

122%

general government balance

general government primary

balance

general government debt

To protect the confidential and proprietary information included in this material, it may not

be disclosed or provided to any third parties without the approval of Aon Hewitt.

Irish Retirement Issues

January 2013

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31 January 2013

Developments in Ireland

Economic downturn

Increasing projected retirement needs

Substantial market declines and volatility

Falling Bond yields

Dramatic move away from DB Plans

Employees reducing voluntary contributions

Uncertainly around legislative/regulatory mandates for fee disclosure

Questioning of the worth of pension savings

Increasing health care costs

Increasing personal taxation

Greater regulation

Increasing complexity

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31 January 2013

Government reactions to these Conditions

Government Proposals

Raise taxes for pensioners and for those employees with potential pension income greater than €60,000pa

Raise State Pension Age from 2014

Temporarily allow AVC withdrawals with marginal rate tax penalty up to 30 percent (will there be a

maximum?)

Temporarily apply the pensions levy ceasing in 2014

CARE Plan for new public sector hires

Tax on imputed distribution increased

Infrastructure projects considered

Tax Free Lump Sum – not all tax free!

Tax relief unchanged

No Change in State pension

Additional Focus

Auto enrolment in DC vehicle

Anticipated action on fees

OECD report on pension provision

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31 January 2013

Employer Reactions to Current Conditions

Increase member contributions

Reduce accrual rate

Change normal retirement age

Change pension increases

Freeze or cap pay growth

Make certain elements of pay non-

pensionable

CARE (revaluation rates CPI-linked, capped

at (say) 2.5% p.a. fixed)

Cash / retirement balance

Nursery schemes

Final salary on earnings below agreed

amounts, DC on earnings above

Restructure DC contributions

Profit related contributions

Guarantees/underpins on annuities/benefits

Consideration of vehicle

Section 50

Close to future accrual

Wind up

Wealth management

Collective DC

DC conditional on retaining final salary for

past service from frozen pay growth!

Reduce or suspend DC contributions!

Mortality adjusted benefits

Conditional indexation on CARE

Pension sabbaticals

Pan European DC

Reduce death/ill-health benefits

Variants on final

salary

Hybrid

DC

Other ideas

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31 January 2013

Member reaction to current conditions

Is it worth it?

Do I need to become a tax expert?

Can I get access to my pension?

Help me with

– Clear, concise messaging

– Compelling, relevant information with specific

action steps

– Unbiased guidance

– State-of-the-art tools and resources

“Big-picture” view of retirement

Better financial outcomes

Flexible financial planning solutions

Looking for certainty of expectations

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31 January 2013

My Point of View

Educate Children

– Introduce retirement and financial management education in schools

– Make it simple

Stay in the Game

– Individuals are not saving enough or early enough

– Government need to actively encourage pensions

Push Greater Trustee/Employer Responsibility

– Make decisions that are in the best interest of employees (recognise the importance of default)

– Unbundle fees so employers can clearly see and manage cost

Engage Government, Companies, Employees and Unions in the Dialogue

– Orderly transition from Final Salary Plans

– Employees want/need help planning for retirement

– Recognise flexibility and variety of employee needs

– Continue to incentivise saving for retirement

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31 January 2013

Ireland Round Up

Whats Done

Adapt Pension to long term demographic reform

– Increase in retirement age

– CARE Plan for public sector

Economic Recession

– Troika – austerity programme

– Pensions levy – ending 2014

– Pensioner USC increased

– SFT/PFT

Limit Risk

– New funding standard deadline

– Introduce risk reserves

– Sovereign annuities

Encourage voluntary saving

– Access to AVCs

– ARFs for all DC savings

Changes to DC Plans

– Charges report and consultation

Whats left to be done

Adapt Pension to long term demographic reform

– Comprehensive Public sector pensions review

– Implementation of increase in retirement age

– Encourage older workers to continue working

– Transparent Charges

– OECD report

Economic Recession

– Extension in pension funding proposal deadline?

– Reduce risk reserve to 0%?

Limit Risk

– Change in priority orders?

– Reduce statutory revaluation?

– MFS priced off other bonds?

Encourage voluntary saving

– Auto enrolment?

– Assurance that tax relief will remain untouched?

– More thoughtful use of Early drawdown?

– Market pensions positively

Changes to DC Plans

– Life cycle

– Target date funds

– Default critical

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31 January 2013

Reinvigorating the Irish Economy

Scheme funding

1. Allow smoothing of assets and liabilities

2. Stop linking funding to German yields;

Other than sovereigns, consider alternative

‘low-risk’ benchmarks such as corporate bonds

3. Give a 3 year employer contribution

holiday

4.Introduce debt on employer regs

Early access to pension savings

1.Allow early access to the tax-free lump sum

2. Facilitate individuals to get access at defined

times through a pension wrapper

3. Allow everyone to disinvest 10% of pension

savings with a 20% tax charge (up to €50k)

Investment

1.Get NTMA to issue mortality bonds

2. Offer extra tax relief on ‘good’ investments,

such as infrastructure

3.Facilitate investment in certain private

equity firms – Government to underwrite first

20% of losses

4. Pension funds to lend directly to a small

business bank to get capital to businesses

Government

1. Facilitate merger of small to mid size DB/DC

plans to improve governance, cost, compliance

and investment efficiencies

2 .Steal all the assets of the State Plans (OOPS –

already mostly done!)

3. Retire Slowly

If the Taoiseach asked

me to help as Pensions

Minister would I….?

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31 January 2013

THE Answer

H =

A

E

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31 January 2013

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