WHILE THE BROADER economy shows signs of recovery, heading into 2014 the outlook for pensions remains uncertain. In part this is due to decisions of the past, but the crisis in pensions also has a lot to do with current Government policy decisions – or lack thereof.
As we saw on last Tuesday’s Prime Time show on RTÉ, the majority of people working in the private sector have made no pension arrangement and will have to rely on State benefits on retirement. We have an aging population, an unfunded State pension and a massively unfunded public sector pension (particularly given the raiding of the National Pension Reserve Fund).
The consequence is that in the near future tough decisions will have to be made. The State pension at current levels, we believe, is unsustainable, and the Government will either need to means-test the State pension or to greatly increase the level of PRSI to ensure that all pensioners can continue to access the State pension on retirement.
Mandatory pension plans?
A good starting point to ensure people have adequate pension provision would be the introduction of mandatory pensions. This was one of the key recommendations of last year’s OECD report on the Irish pensions sector. This initiative would compel companies and workers to fund their retirement and would be in line with policy in nearly all other OECD countries (Ireland and New Zealand are the only countries without a mandatory provision).
2013 was a bad year for defined benefit schemes, with many of them being wound down – the Pensions Board estimates that there were 1,271 in 2008 compared to just 750 today – but at least the past 12 months saw the Minister changing the priority order. This will allow for a fairer and more proportionate distribution of assets where a scheme is wound up.
Pension levy effectively steals private assets
However, a less fair measure is, we believe, the continuation of the pension levy and the introduction of a further, additional levy in Budget 2014. Deputy Stephen Donnelly pointed out on Prime Time that these measures were akin to the Government putting its hands into private citizens’ accounts – and effectively stealing their private assets.
The reality is that the pension levy/levies will in part be used to pay for the fallout of the Waterford Crystal ruling and for other similar situations where both company and scheme are in deficit.
Clearly, where there are double insolvencies, there is a need for former Waterford Crystal staff and other former scheme members to receive financial support. However, the manner in which the levy is being imposed is unfair, as it is applicable to all private pension schemes and not just defined benefit schemes, where the benefits are greater.
Defined contribution members, who have to contribute more to their schemes and who will struggle to enjoy the benefits afforded to members of DB schemes, are also now meant to pay for what are essentially failing defined-benefit schemes. They are effectively paying for an insurance policy that they themselves can never benefit from.
Clarity is needed on ‘jobs initiatives’ claim
It has been suggested that the extra levy is partly there to fund jobs initiatives, but despite being asked a number of times in the Dáil about the number of jobs the levy will create, or even what proportion of the levy is being set aside for job creation, the Government has not yet provided clarity on this issue. We are calling on the Minister to quantify the number of jobs that have been or will be created through the use of levy funds.
Our feeling is that the levy is here to stay and that while it will serve to compensate members of insolvent defined benefit schemes, it may also dissuade other, younger employees to start a private pension. This in turn will put further pressure on the State pension in the years ahead.
In contrast to the private sector, public sector workers still enjoy expensive defined benefit pensions. There have been some changes for new entrants to the public service, but it is necessary that greater, more radical changes are made to reduce inequity between public and private pensions.
It has been seven years since the Government Green paper on pensions, and we are no clearer on policy for this sector (apart to dip into private pensions to fund insolvent defined benefit schemes and finance jobs initiatives). This inaction raises the question as to whether the Government has any long-term strategy for pensions or if there is a need for the issue of pensions to be taken out of the political arena and an independent body be set up to reform the sector.