No short-term fix for long-term pension issue

No short-term fix for long-term pension issue

Parliamentary democracy is not a bad system, but it has many in-built limitations. Arguably, the chief among these is the difficulty of planning for the long-term, long-term meaning longer than beyond the next election, writes Brian Keegan.

The need for long-term planning has rarely been more important. But very few modern-day political leaders manage to survive for multiple terms of office, and even when they do, they rarely manage to hang on beyond a decade. Because of this, ministers tend to focus on the short-term, it’s what wins elections.

Pension policy is not short-term and doesn’t win elections, although it can contribute to losing them. With an ageing population and a lower number of workers paying social insurance in the future, the pressure to fund state pensions for pensioners who are also living longer is immense.

For most people a pension is not a fascinating subject. Rather, it is something they might prefer not to have to think about, because it is an acknowledgement that the vitality which enables them to pursue their successful work lives doesn’t last forever. So, when we see a government roadmap for a topic like pensions, like the one that was published last month, it has to be taken with a grain of salt. Governments launch major pension initiatives every few years. These are long on aspirations, but are rarely delivered upon.

Removing the obligation on retirement to buy a fixed income called an annuity was one such change. Most people can now decide to take more of their money in funds which can be dipped into as required, rather than locking money up in long-term commitments.

That’s not to say that there isn’t some good material in the pensions roadmap, even if it’s not all entirely original. The best idea is auto-enrolment. That is the notion that private sector workers should have to opt out of making a pension contribution rather than opt in as is now the case. The roadmap promises a consultation, with possible implementation of auto-enrolment sometime in 2022.

Even if we accept the most optimistic predictions for the duration of the current government, that’s well into the term of the next government. Auto-enrolment is particularly important now because it will be harder in future to sustain the current levels of the contributory state pension due to the growing worker/retiree imbalance.

Another good suggestion in the roadmap is that the benefit of pensions provision and the options for people, if doing so during their working career, could be better publicised.

It is undeniable that despite the sound logic for people making their own pension provision, and the significant tax incentives, the level of take-up of private pension funds is too low. That suggests a need for better marketing; a need that will be accentuated if auto-enrolment is to become a reality.

We need to think of pensions less in terms of grinding obligation and more in terms of savings for the whole of life. Ireland is not averse to saving. The SSIA scheme, which ran in the early years of the century, showed that if people are offered clear structures and incentives for saving, they will save. The same can and should now be done for retirement savings.

Brian Keegan is director of public policy and taxation at Chartered Accountants Ireland

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