We must act now to defuse retirement time bomb
Published 15/05/2015 | 02:30
As we move away from the crisis management of the last few years, focus is returning to some of the long-term issues that have largely been ignored.
Pensions are among the biggest of these. People living longer means that pensions must get paid for longer, and generally there isn't enough put aside for this when people are working. This is true both for individuals and the Government.
The numbers are overwhelming, which encourages a head-in-the-sand approach. But this can't last forever and it is imperative that individuals take action, or are forced to, and that Government leads the way.
At the moment, 13pc of the population is over 65. This will rise to almost one in every four by 2060. With lots of unfunded pension promises, this will place a huge burden on the smaller working population to provide the taxes to pay those pensions.
The increasing concern is that those pension promises will simply not be honoured. Current public sector pension liabilities are almost €100bn. The State Pension is currently running an annual deficit and that deficit is projected to be over €300bn by 2066.
While the Government acknowledges these issues, the short-term actions taken in recent years have made the situation worse.
The pension levy has taken over €2bn out of private sector pension savings. Nearly €20bn was taken from the National Pensions Reserve Fund to prop up the banks. Tax reliefs have been reduced. Regulation has been a contributory factor in almost 130,000 fewer employees in private sector defined-benefit pension schemes over the last eight years. In the same time period, there has been an increase of over 60,000 employees in public sector defined-benefit schemes.
The pension system is far too complex and there are too many different rules that force people to pay for technical advice, rather than focusing on how much they should save and where they should invest it.
The State Pension is the cornerstone of the Irish pension system. The maximum amount payable is €230.30 per week.
It hasn't been increased since 2009 and the value of it is being eroded by not allowing for inflation and the change in the age at which it is payable from 65 to 66 last year. That increases to 67 in 2021 and 68 in 2028.
The Government says it is committed to the State Pension but those words need to be backed up with a plan showing how it can continue to be sustainable.
The tax and regulatory rules need to be overhauled to deliver an equitable system.
The pensions industry also needs to ensure pensioners are at the heart of what it does. The focus should be on providing pensions for people in retirement and that should be done in the most cost-efficient and effective way possible.
The Government needs to implement a pensions plan or delegate to a group that will.
There are far too many reports gathering dust on that issue. It may require a minister for pensions, or preferably the issue could be depoliticised with a commission on pensions. Politicians need to plan for the long term, not just the next term.