There are three classes of workers in Ireland -- those who have pensions, those who don't and those whose pensions won't pay the bills.
The Government knows what the problem is, but the solution will not win votes with the electorate so it kicks the can down the road and leaves the solution for somebody else to find. Pensions are not mandatory, unless an employment contract adds it to the package. But even that can be reneged on now.
There are two sides to the problem. First of all, half the population have nothing but the State pension to look forward to and many are not even entitled to that. The real problem is that there are too few people in the workforce to support those who don't have a pension. There are 4.5 workers for everyone retired, but this is falling to 2:1. By the time the current workforce retires, there will not be enough workers to support them. Half the workforce is dependent on the State for support. There is not enough to go around.
Then there are public sector pensions, which are largely funded out of tax revenue. While civil and public servants contribute something towards their pensions, it doesn't cover the cost. They pay towards their pensions, but not for them. The rest is paid for by the employer and in this case that is the private sector and it cannot afford pensions for its own workers.
The evidence shows that those at the top manipulate pensions to hide what they cost the State. Civil servants' pensions are valued between 20 and 30 times the annual pension. That's as much as €5,000,000 for some. Pensions have been widely used in the public sector to push pay and remuneration to levels that would not be justified if they formed part of their salaries. Rank-and-file staff get entitlements that all workers should have, but the cushioned elite get more than they need and much more than we can afford.
The Irish labour force is about two million. More than 300,000 are unemployed, another 300,000 are public servants and half the workforce are not saving for their retirement We cannot afford to let this continue. The burden will fall on workers and that means even higher taxes in the future.
Michael Noonan is the latest winner of a gold star, as he was named the best finance minister in Europe. He only had to take on a national debt of €175bn for the Irish people to qualify. The interest costs alone are enough to fix the HSE, restore free third level education, pay a decent pension for everyone who needs it and wipe out the arrears for distressed borrowers. It will take so long to recover from the recession that there is no prospect of averting the pension crisis that is coming.
We have the best-paid public servants in Europe and their pensions are better too. Retired politicians have pensions of €50,000 to €150,000, and more, when half the workforce will have less than €12,000 to live on. Some, because they have no entitlements, will be like beggars as they ask for help. Politicians and senior public servants might lose what they have if they are to solve the problem for the rest. They could but they won't.
Anyone can live well on €30,000 or €40,000 a year in retirement. But many workers don't even earn half that now. You need to put aside at least 15 per cent of your annual salary for pension, if you want to retire on half your salary, but there's no guarantee. The earlier you start, the better, say between 20 and 25. If you start later, or your salary rises disproportionately, then you must save a lot more.
It's no different for public servants. A figure of 15 per cent might cover a pension if their basic salary doesn't rise. If they don't pay full PRSI, they won't be entitled to the State pension, so they need to put aside at least 20 per cent instead. Public sector pensions cover spouses too, so that costs even more. If their career progresses and their salary rises in large increments over time, the percentage needed to pay for a pension must rise even more.
Last week, the Sunday Independent revealed that hundreds of academics in the country's colleges had their salaries topped up to maximise the pensions they get, because they spent longer at school than the rest. They are not the only ones who engage in academic pursuits. That justifies their higher pay, but out of it they should pay for whatever pensions they choose. That's what everyone else does.
Professionals and others go to college and engage in lifelong learning for which they don't get paid, and they don't clock up pension rights either. Accountants and lawyers in the private sector continue their formal academic training for many years. Pension funding is often deferred until they are in their 30s, having paid back student loans. Then the pressure is on to build up funds with the extra pay they earn. Tax relief helps, but even that has been cut.
Meanwhile, the cushioned elite in the public sector have their outrageous pensions enhanced, with no adverse tax consequences at all. Tax relief is skewed in favour of the better off, but that doesn't mean it doesn't have a part to play.
There is one solution to make retirement affordable for all and that is mandatory pension funding. If workers in the private sector can't afford pensions for themselves, they should not be asked to pay for public servants, who should be able to pay for their own.
A handful of people in the private sector (fewer than 200) built up outrageous pension funds that the system encouraged. But there are still more outrageous pensions in the public sector and there is nobody to reel them in. We have only ourselves to blame, but there is nobody to complain to anyway.
By the time the financial crisis has abated, the pension crisis will be out of control. If the half who don't have adequate pensions just don't care, then it doesn't matter. I think they do, but nobody is fighting their cause. It's not a matter of who will pay for them, it's a case of how can they pay for themselves.
It is the job of the Government to make things fair. This Government has another year. Let's see if it can turn things around.
James Fitzsimons is an independent financial adviser specialising in tax and financial planning