Hanafin must act now on pensions
And so it came to pass. The Irish taxpayer has dipped into the National Pension Reserve Fund to foot the bill for the initial €7.5bn to recapitalise our three biggest Irish banks.
Seven months ago when I proposed this exact measure, a Fianna Fail minister dismissed the idea as bar stool economics; when I appeared on the Marian Finucane show, another Fianna Fail TD stated there was no way the Government was ever going to bail out the banks.
That's been our problem throughout 2008. We have been slow to accept and to act to contain the implosion and possible total collapse of our economy.
Last week we had to spend the hard-earned money we have put aside for our older years, our pension money, to keep our banks and our economy afloat. It is a measure I fully endorse, but obviously I question why it took so long to be acted upon.
When your granny has to spend what she might call her "funeral money", it means things are very serious. I genuinely believe forewarned means forearmed. So today I need to draw your attention to another piece of devastatingly bad news. I don't do it lightly.
Understandably we have all been caught in the headlights of the banking meltdown, but we have overlooked another financial tsunami that is flooding towards us.
There is now a €30bn deficit in the pension funds we as a nation have invested and saved in.
That means that if all the pension funds had to pay out what is due to their members today, they would be €30,000m short.
Let's put that another way.
At the end of 2008, the "bad debts" and "losses" in Irish pensions are as bad as those in Irish banks. So our banks are bust and being bailed out, and our pension funds are technically insolvent. The difference is that most people are not retiring for another 10 or 15 years, so there is no run on a pension fund like what was happening at the banks before the Government had to step in to guarantee them and then recapitalise them.
So I am very sorry to report that if you have a defined benefit pension and you cashed it in today, it would be almost worthless. All you have paid in has almost entirely been wiped out by the collapse in the stock markets.
You may well ask why your pension fund manager didn't get out of equities or shares earlier, but he or she was almost forced to stay in as they tried to get an annual return of seven per cent -- the amount needed to grow the pension fund sufficiently to meet its commitments. The shares they bought on your behalf have collapsed, and with it your pension value has been decimated in the last 18 months.
The catastrophe we now face is that, as companies go bust -- and, sadly, quite a number will over the next few months -- by law their pension fund must be immediately wound up, and what is left paid out to the members. So people will not only have the horror of losing their job, but will also be told that almost all the money in their pension is gone.
Imagine not only finding yourself jobless but now penniless for your old age as well.
The most vulnerable are those in an employer-backed defined benefit pension scheme where the company is teetering on the edge of liquidation. There is an anomaly here. There are two classes of person in a pension fund: the pensioners, those who have officially retired and are being paid their pension from the annuity their fund purchased for them; and the members, those who are still working and still paying into the pension fund.
But when a company goes bust and the pension fund is wound up, the pensioner is legally protected -- but in Ireland, unlike the UK, the member is abandoned and left, in these times, penniless.
Let me illustrate the anomaly. Tommy and Frank, both 61, worked side by side for over 35 years. Their company was looking to reduce costs two years ago and was offering early retirement. Tommy opted for it, retiring at age 60 but Frank, always a hard worker, and helping a grand-daughter through college, decided to stay on and retire at 65 in 2011. In 2009, if his company goes bust, the pension fund will be wound up. Tommy will still get his full pension, as is only right, but in Irish law, Frank will get nothing, even though he has paid more money into that pension fund and for longer than his old workmate Tommy.
Minister Hanafin has to act immediately and rush through legislation to address this anomaly and protect those pension fund members whose companies go bust. They may have to be taken into a special new recovery pension fund, ring-fenced and protected,
within the National Pension Reserve Fund.
The hope here is that for those not retiring for another 10 or 15 years their pension funds and the world's financial markets will have recovered sufficiently enough to pay out a full pension by then.
But this Government seems to be never up with the game. Is the minister waiting for companies to go bust before she actually does something about it?
The minister is also going to have to consider a "debt on the employer provision" in the legislation to stop employers voluntarily liquidating a company to avoid their pension commitments. When a ship is sinking -- in this case, our economy -- don't be surprised how people will murder one another to get on a lifeboat.
And there should be no distraction this time. There won't be any €87m directors' loans scandals to be discovered here. The pensions industry is peopled by the most conservative and prudent people you could find. Yes, there'll be accusations that they should have reduced our exposure to equities and shares. And they did, but with hindsight, not sufficiently.
Even the most dull actuary rode the tiger like everyone else and didn't see the scale of the looming crash.
If you are in a private sector defined benefit pension scheme, you are at most risk. State and public sector pensions are protected and paid for mostly through the wealth generated through the added value and taxes of those in the private sector.
But our politicians, those who have the ultimate power to address this issue, are in the protected public sector category. Perhaps that explains why they have been so slow to tackle this ticking timebomb. If they do nothing about this, our ministers will still draw their handsome pensions.
Nothing but urgent action is required and Minister Hanafin must act immediately.
