Mandatory pension scheme ‘risky’

THE option of a mandatory pension scheme is misleading and risky, according to a leading Irish academic.

UCD actuary Dr Shane Whelan has criticised the Pensions Board’s options on mandatory savings accounts saying they would be poor value for money.

He said that the same levels of contributions to mandatory savings accounts would produce pensions up to 20% lower than upgrading the basic State pension.

In a paper presented to the Economic and Social Research Institute last night, Dr Whelan argued that the figures produced in the National Pensions Review are misleading and not consistent with market values as they ignore the market price of risk.

“Marginal savers are required to assume an inappropriate level of investment risk and it is naively assumed that such risk will have no consequences,” he said.

Dr Whelan’s paper challenges the assumptions underlying the costing of alternative systems presented in the Pensions Board reports.

It claims that by ignoring investment risk and its consequences, the cost and value of pensions are materially understated.

“What if the real return from equities is negative over a 50-year period, as it was in France and Germany over the first half of the 20th century? The unreliability of the return from risky assets is why the market offers such a high risk premium.”

A green paper on the future of pensions provisions in Ireland is due in the next few months.