#RealityCheck - "Don’t expect to see anything other than platitudes when it comes to pension strategies"

Vincent Wall on the lack of any major pensions-related headline

It’s depressing, but hardly surprising, that the only major pensions-related headline generated by the outgoing government, was linked to a controversy about the political appointment of the new chairman of the Irish Pensions Authority.

Amidst the flurry of election pledges targeted at easing our financial burden, don’t expect to see anything other than platitudes when it comes to strategies for pension provision.

And yet, this is one of the most pressing financial challenges facing future governments, both as stewards (hopefully) of the nation’s financial well being and as a major employer in its own right. 

It’s also a critical issue for the country’s private sector employers, particularly SMEs, and for a growing cohort of ageing employees.

It’s true, Public Expenditure Minister, Brendan Howlin did recently announce the establishment of an interdepartmental group to examine the impact of the pushing out of the age of entitlement to the State Pension.

In that context, let’s remind ourselves that a mere thirteen years from now, newly-retiring people won’t be able to draw down this relatively modest pension benefit until the age of 68.

That will leave a gap of three years during which the hundreds of thousands of private sector employees who have no privately-funded pension of any sort and forced by their current contracts to leave work at age 65, won’t have any form of financial support.

On closer perusal however, it looks as though Minister Howlin’s principal focus is on how this funding gap will affect public sector workers. This group, under our current skewed system, benefit from taxpayer-funded, guaranteed employment pensions as well as the State Old Age pension, though of course, the latter benefit won’t kick in as early in the future.

In an accompanying statement, the Minister points out: “we need a policy framework to support longer working lives....both in the area of the State Pension but also public service pensions.”

The people who benefit from public service pensions are generally members of trade unions who have the leverage to force governments to keep paying up: they also represent a key target electoral constituency for the Labour Party.

But what of the estimated 50% of the private sector workforce who have no pension arrangements, other than the hoped-for State Pension?

Well, three years ago, a Government-commissioned report by the OECD noted that “private pension coverage, both in occupational and personal pensions, is uneven and needs to be increased urgently”. It also recommended that increased coverage could be obtained through some form of mandatory pension arrangements, automatic enrolment and/or improving financial incentives for employees who participated in private pension arrangements.

And what did the relevant minister, Tanaiste, Joan Burton do?  She established a new Expert Working Group to assess the situation. When that group will make further recommendations and whether the Government of the time acts on their recommendations is anybody’s guess.

It seems the Tanaiste’s reluctance to act faster on the recommendations reflected concerns about the strength of economic recovery at the time and the cost of mandatory pension contributions on companies and employees.

But, the economy has been in strong recovery for close on two years now, and when better to at least commence the public debate about the urgent need for  mandatory pension contributions, than when an administration is implementing higher Minimum Wage thresholds and pushing for even higher Minimum Living Wage levels?

Meanwhile, the country’s largest pension management company, Irish Life, recently warned that the fund from which the State Pension is currently financed, will have a deficit of up to one-third within the next twenty years, unless all our PRSI contributions are significantly increased...And, that if the under-funded State Pension is not maintained even at current levels, then up to 50% of retirees will face significant poverty through their perhaps 25 to 30 post-employment twilight years.

Have a good look at those election manifestos for any mention of pension strategies.

Live from @ElectionNT