The Irish government plans to introduce a new national pension scheme. Employees will be automatically enrolled in the new scheme unless they are already in a scheme offering adequate benefits, or consciously decide not to join it. Government’s proposals, as set out in Draft Heads and General Scheme of the Automatic Enrolment Retirement Savings System Bill 2022 , envisage a complicated unit-linked arrangement. The required contribution for an ‘adequate’ pension is 14% of earnings, made up of 6% from workers, 6% from employers and 2% from the state.

I have proposed an alternative, much simpler, approach, which claims to deliver higher benefits for half the cost. The required contribution for an ‘adequate’ pension falls to 3% for workers, 3% from employers, 1% from the state. Members’ pension accounts, before and after retirement, will be administered like high-interest savings accounts.

Since 2018, I have been asking government to check the feasibility of my proposal. In April 2023, Heather Humphreys, Minister for Social Protection, finally acceded to my request. She asked the Pensions Council for an independent external evaluation. Her change of mind may have been prompted by my winning an award from the Institute and Faculty of Actuaries. and also by the realisation that it was crazy asking workers and employers to contribute so much for an 'adequate' pension.

Unfortunately, she asked the wrong people. The Pensions Council had already tried to bury my proposal - twice. In 2021, they concluded (21 May) that they had ‘doubts around the feasibility of a feasibility study’. In 2022, after being asked again, they rejected it on spurious grounds (e.g., claiming that workers want choice, when they just want good investment returns; and querying the Equity Risk Premium when its existence is unquestioned by serious economists). It just "disappeared" from the agenda, without explanation, after the December 2022 meeting.

Following the April 2023 request from Minister Humphreys, the Pensions Council published an RFQ on 21 June 2023 , indicating a maximum fee of €50,000 - not a good omen for a proposal which claims to save the country over €1.5 billion a year. None of the major consulting firms applied at that price. They also ignored an offer from Brian Woods and me to share our workings and to answer any questions on a pro bono basis. They gave the job to an individual actuary, despite concluding (17 May 2023) that a comprehensive review would likely involve several disciplines.

At time of writing (26 November 2023), the Pensions Council has still not published the evaluation, despite Minister Humphreys’ request to have it completed in time to progress legislation through the Oireachtas in the autumn. They also seem to have taken a different interpretation of the Minister’s request than was conveyed to me. The letter to me read that the Minister asked the Pensions Council for an independent external evaluation of the issues involved. The Pension Council minutes state that the independence criterion only applies to the technical feasibility aspect, ‘while the Council would consider and discuss other considerations.’ Is this a case of Council wanting to put its own ‘spin’ on the Minister’s request in order to control the narrative?

Pension Documents

Document Date Description Action
10/08/2023 Thoughts on Pension Council's RFQ Read

The attached document, which I am updating on a regular basis, sets out my thoughts on the RFQ from the Pensions Council for a Technical Feasibility Assessment of my Proposal for a Smoothed Approach to Auto-Enrolment. I hope that the consulting firm chosen to complete the feasibility assessment will find it a useful reference document.

Document Date Description Action
16/07/2023 Brian Woods' observations on Professor Oskar Goecke's analysis of smoothing formula Read

The attached note is Brian Woods’ summary of, and extension of, the key messages in Professor Oskar Goecke's analysis of the smoothing formula in my essay for the Institute and Faculty of Actuaries. Professor Goecke’s remarks are an appendix to Brian’s note.

Document Date Description Action
02/07/2023 Spreadsheet showing smoothed fund and smoothed return calculations for Japan 1990 to 2019 Read

See comments on the entry of 1 July 2023 for the spreadsheet showing corresponding smoothed fund returns for the UK from 1990 to 2019

Document Date Description Action
01/07/2023 Spreadsheet showing smoothed fund and smoothed return calculations for UK 1990 to 2019 Read

The attached spreadsheet shows how smoothed returns are calculated, based on the cash flows and returns shown on the spreadsheet.

The main purpose is to enable any consulting firm that is thinking of responding to the RFQ from the Pensions Council of 21 June 2023 to understand my calculations. It is possible to play around with the spreadsheet, varying cash flows or index values or to change the weighting for current market value in the smoothing formula (I've assumed a 1% weighting for current market value).

A few comments on the spreadsheet:

1. I assumed a simple progression of cash flows, growing arithmetically for ten years, staying constant for the next ten years, then declining (but remaining positive) for the next ten years, reaching zero after 30 years. Cash flows are assumed to go negative after 30 years. The smoothing formula changes slightly when cash flows go negative. The changes to the formula are set out in the last two paragraphs on page 14/27 of my entry for the Frank Redington Prize. However, this refinement isn't relevant to the attached spreadsheet, which only looks at the period while cash flows are positive. The adjustment for negative cash flows is for the honours class! However, I'll be glad to discuss with anyone who's interested.

The assumed progression of cash flows is broadly as we would expect, given that AE will be rolled out on a gradual basis, with contributors paying regular (monthly) contributions until retirement, then starting to make withdrawals from the fund.

A key assumption is that cash flows are independent of market returns, i.e., workers don't increase their contributions if markets are going gangbusters, nor do they reduce them or cease contributing entirely if markets suffer a sustained downturn. The first part of this is obvious, as contributions are a fixed percentage of earnings and no AVC's will be allowed. My argument is that the second part is also assured, since workers are most unlikely to cease contributing if markets are going poorly, since that would result in them losing the benefit of the employer's matching contribution and the state's contribution. An important consideration in this regard is that Ireland is probably too small to justify more than one AE scheme - ever.

2. The smoothing formula used in the spreadsheet seems at first sight to differ from the formula on page 8 of the paper; however, a bit of algebraic manipulation should show that they are the same. The formula in the paper shows the smoothed value at the start of the month (cash assumed to arrive at the start of the month) while the formula in the spreadsheet shows smoothed value at end of month.

3. There is a difference between the columns "Market Index" and "Market Index (adjusted)". The first shows the value at the start of each month of 100 invested on 1 January 1990, while the adjusted market index allows for contributions being invested every month.

Document Date Description Action
21/06/2023 RFQ for Technical Feasibility of Smoothed Equity Auto-Enrolment Proposal Read

I finally got what I've been asking for, literally for years, but without success up to now.

On 28 April 2023, an official in the Department of Social Protection wrote to advise me that the Minister (Heather Humphreys) had referred my proposal for a smoothed equity approach to auto-enrolment to the Pensions Council for an independent external evaluation.

On 21 June, the Pensions Council responded to the Minister's request and issued an RFQ (Request for Quotation).

The request from Minister included the evaluation of my proposal "to provide her with (amongst other considerations) an assessment of the technical feasibility of the proposed model, including the appropriateness of any underpinning assumptions employed and whether the modelling and evidence provided is sufficient to provide assurances of feasibility."

Document Date Description Action
28/03/2023 Presentation to TASC Seminar 28 March 2023 Read

Presentation to TASC seminar on 28 March 2023. Other presenters were Tim Duggan, Rosheen Callender, Laura Bambrick, Donal de buitleir and John FitzGerald. The video of the seminar is at

Document Date Description Action
13/05/2022 Entry for Institute and Faculty of Actuaries' Frank Redington Pensions Prize Read

At an awards ceremony on 20 October 2022, at the home of the Institute and Faculty of Actuaries in Staple Inn Hall, I was honoured to come joint first, with Nick Silver and Craig Turnbull, in the competition for the Frank Redington Pensions Prize. The brief for the prize was "to propose a system, or reform to the current system, which would deliver a low-cost affordable pension to the majority of the population".

Document Date Description Action
06/01/2021 Paper to Society of Actuaries in Ireland (presented 20 Jan 2021) titled "A New Approach to Auto-Enrolment: Higher Pensions of Half the Cost" Read

The key message of the paper and presentation is that a combined contribution of 7% of earnings (3% employee, 3% employer, 1% state) can deliver higher pensions under auto-enrolment than would be delivered by twice as much under the previous government's 'strawman' proposals. The key ingredients of the proposed approach are:

1: Everything invested in growth assets, from date of joining until death.

2: Pooling of risks and smoothing of returns to minimise volatility.

3: Smoothed returns mean that member's pension account looks just like a high-interest bank account and can be presented as such.

4: The message is simple: money is added to the account when the employee is working, deducted in retirement, interest is added throughout.

5: The simplified structure cuts costs. There is no cliff-edge at retirement, no need for expensive advice on retirement and investment options.

6: There is no such thing as a free lunch. The cost is complete loss of investment freedom, but good flexibility on drawdown options.

7: Optional extra of longevity protection in return for a reduction in return credited to account from age 75.

Document Date Description Action
17/10/2019 Summary description of proposed smoothed approach to auto-enrolment, including longevity protection Read
Document Date Description Action
29/07/2021 Macro and Micro perspectives on auto-enrolled pensions Read

The conventional wisdom is that members of DC pension plans should invest a high proportion of their savings in equities when young, then shifting towards more secure assets as retirement approaches, and staying in more secure assets in retirement; however, this so-called 'lifestyle' approach means that members lose the expected higher returns from equities just when they would benefit from them most, when their funds are highest.

The smoothed equity approach as set out in the attached paper allows contributors to remain in equities for their entire membership, including all through retirement. Contributions and benefits are calculated, not by reference to prevailing market values, but by reference to average values, where averages are calculated over many years. This allows DC contributors to achieve equity-like returns at volatility levels less than those for funds invested entirely in lower risk assets.

The prize, assuming excess equity returns in future similar to those achieved in the past, is a pension for life approximately double that affordable on a 'lifestyle' approach to investing. The cost of the higher returns is a curtailment of contributors’ freedom in relation to contributions and benefits, which mean that the approach can only be contemplated for auto enrolment.

Does the approach work? If so, does the prize of double the value for money justify the price of limitations on contributors’ freedom? I believe that the answer to both is an unqualified "Yes".

Document Date Description Action
05/06/2019 Supplement to 27 May 2019 paper for Working Group of Society of Actuaries in Ireland. Further analysis of simulation results for auto-enrolment Read
Document Date Description Action
27/05/2019 Paper to Working Group of Society of Actuaries in Ireland on simulation results for smoothed approach to auto-enrolment pensions Read
Document Date Description Action
17/12/2018 Presentation to pensions experts on smoothed equity investment for auto-enrolled pensions Read

On 17 December 2018, the Pensions Authority convened a meeting of pensions experts to discuss the merits of the proposed smoothing approach to auto-enrolment. This is my presentation at the start of the meeting.

The third slide is key. It shows how much pension savers lose (on average) by taking a "lifestyle" approach to investing, i.e. de-risking in the years leading up to retirement by moving funds to low-risk, low-return assets, and then leaving them in such assets throughout their retirement. The title of the slide - "Foot off the gas when fund at its maximum" - says it all. The proposed approach allows contributors to metaphorically keep their foot on the gas for the entire duration of their membership, enabling them to benefit from the expected higher returns on equities/property from the day they start contributing to the day they die.

Document Date Description Action
04/11/2018 Submission to Department of Employment Affairs and Social Protection on smoothed equity investment for auto-enrolled pensions Read

This is my submission to government for a new approach to auto-enrolled pensions. Under the proposed approach, contributors' savings are invested in equities, property and similar "real" assets, both during their employment and after they've retired. These assets should produce higher long-term returns than deposits and bonds, but with a risk of sharp losses in the short-term. No-one likes losing money. The proposed approach protects contributors from the risk of large short-term losses while allowing them to benefit from the higher expected long-term returns. The proposed approach also addresses the risk of contributors outliving their savings.

Document Date Description Action
15/10/2018 Irish government's 2018 'strawman' proposals for auto-enrolled pensions Read
Document Date Description Action
28/02/2018 Article in Irish Broker magazine Read

This magazine article of early 2018 summarises my presentation of 7 February 2018 to the Society of Actuaries in Ireland.

Document Date Description Action
07/02/2018 A New Approach to Drawdown on Group DC Pensions Read

This was the first public presentation of my proposed smoothing approach to pensions, presented to the Society of Actuaries in Ireland in February 2018. It dealt only with the drawdown stage, but I indicated (in slide 68) that the approach would be ideal for auto-enrolment, both pre and post retirement.