A Portfolio Approach to Assessing an Auto-Enrolment Pension Scheme for Ireland

This paper investigates the feasibility of a national auto-enrolment pension scheme in Ireland. The design of an auto-enrolment scheme for Ireland is motivated by international experiences of autoenrolment. Using a bootstrap approach to model historical returns for 24 hypothetical portfolios over a 40-year period, we investigate the probability of achieving a target pension income. The purpose of this empirical analysis is to determine what strategies and portfolio design will best achieve a projected target income replacement ratio for a typical member of a national auto-enrolment scheme. The simulated results indicate that a contribution rate of 8 per cent should, for the median outcome, be sufficient to generate a pension income close to 65 per cent of final salary. However, the State Contributory Pension plays an important and significant buffer for retirees, especially in the unlucky outcome when asset values have fallen just before retiring.