Let's defuse Ireland's ticking demographic time bomb
It's crazy that Ireland imposes a tax on life insurance and a pension levy on retirement cash, says Irish Life chief executive Bill Kyle
Published 10/05/2015 | 02:30
I've had the opportunity to live in Ireland for two years now. It has been a real privilege to experience Irish life and I am truly enjoying living in Ireland.
It is a beautiful country full of diverse and outstanding natural beauty. The people are warm and welcoming and genuinely want visitors to have a great time. I have been to 31 of the 32 counties and I've enjoyed many hurling, football and rugby matches along with the unique character of links golf. My wife and I are very proud to show Ireland to our many visitors from Canada.
The Irish people deserve the respect they have earned for the way they have dealt with the financial crisis and the hard-fought start to economic recovery. Ireland is well positioned to continue this positive momentum as the English speaking gateway for doing business in the European Union and having a talented and educated workforce available to companies that want to invest here.
I am often asked what it's like to live in Ireland. It's easy to come up with a long list of positives as it is truly a remarkable place. People also ask what has been the biggest surprise.
While there are more similarities than differences between here and in Canada, I have been disappointed to find many examples of government policy that penalise people who behave responsibly by sacrificing short-term gratification to plan for their future.
I have always worked in an environment of stable public policy where people are encouraged to save for retirement and provide for themselves and their families in the event of illness or untimely death. And when changes to that system are contemplated, careful consideration is given to make sure that all potential consequences are well understood.
In contrast, here I discovered that there is a tax on buying life insurance and a pension levy on retirement money already saved. Within a few months of arriving I witnessed the pension levy amount increase and the tax deductibility of health insurance significantly reduced.
Changes of this nature undermine people's confidence and desire to plan for their futures.
While Ireland has the benefit of a younger average age than most developed countries, it still faces the demographic changes that will see 30pc of people born today living to see 100. Recent retirees will average over 20 years in retirement. In the future, government benefits such as health care and pensions will be supported by just over two workers for every retiree - compared to a 5-1 ratio a few years ago.
Given this reality, it is critical that public policy be put in place now to lessen the demand on government resources in the future and to reduce the transfer of this burden to future generations. With the economy recovering, now is the right time to start implementing policies that make existing social programmes sustainable and encourage people to become more self-reliant.
Many policy alternatives could be considered and it is important that any course of action addresses the unique needs of Ireland and not blindly adopt ideas from other countries. An example of a unique Irish challenge is a lack of experience with investing compared to other countries. For example, 25pc of Irish wealth is held in cash deposits Vs only 8pc in Canada and 12pc in the UK.
Recent research suggests that very few Irish investors are aware that their cash is earning almost no return. It is important that the unique needs are understood by establishing a fact base and not accepting opinion.
In Canadian retirement reform discussions, a number of inaccurate assumptions drove much of the original debate and proposed solutions. These assumptions were based on opinion and in cases where data was used, no analysis beyond averages was done.
Once specific research was undertaken, it was found that the problem areas were completely different from what had been assumed.
The original broad-based proposals were found to be addressing the wrong segments of the population and presented significant unintended consequences.
Instead, implementing a combination of smaller, targeted reforms would be much more effective and present less risk.
It is critical for Ireland's future to bring sustainability to its social programmes. That means people have to have the confidence to invest in their futures. That requires stable policies that encourage desired outcomes.
If individuals are to be asked to commit their hard-earned money to meet future needs, they need to have confidence that the pitch will not be tilted against them at some point in the future.
I believe it is important to develop solid fact bases and give careful consideration to establishing well thought out policies and then avoid constant tinkering so people can put good plans in place.
The events of the recent past may make this difficult but that should not stop public policy from strategically looking to the long term and taking encouraging steps now.
Bill Kyle is chief executive officer at Irish Life Group
Sunday Indo Business