Revamp of pension system urged

FRESH ways of financing the crisis hit pension sector are urgently required, a leading expert warned yesterday.

It is imperative "a new model for running pension funds" be found to replace the current system.

Robin Blackburn, professor of sociology, University of Essex, who has written extensively on the subject, warned that even the traditional defined benefit plans are coming under increasing pressure to deliver what they promised to workers in retirement.

Increasingly, firms will be forced to renege on their commitments or use the threat of job losses to force workers to accept lower retirement income.

In Ireland, Professor Blackburn said that both occupational and personal provisioning of pensions was crucial due to the low level of state pension which is due to increase from 28% to 34% of the average industrial salary. Though better than Britain he said it was way below the levels of state pension provided in France, Germany and elsewhere.

Overall, the Professor who wrote the book: "Banking on Death or Investing in Life: the History and Future of Pensions" says radical measures are required if the crisis is to be resolved.

"Today's public, personal and occupational regimes all suffer from faulty design.

The generous public system of continental Europe have positive features which are worth defending," he said.

They don't waste contributions on expensive competitive marketing, but they are paid for by payroll taxes that account for nearly one fifth of wages.

In his view: "The specific link between an employer and a pension fund, whether a Defined Benefit (DB) or a Defined Contribution, should go since it creates problems both for sponsors and for the plan members."

Firms who have made a defined benefit promise to their workforce will be increasingly under pressure to honour them, and can only do so at the expense of today's workers, he said.

"If a better pension regime can be found together with a source of finance, then members of DB schemes which are threatening the vitality or existence of their sponsor could probably be persuaded to sink their claims in the new arrangement.

Speaking at an Irish Congress of Trade Union conference on pensions in Dublin he said part of the current crisis in DB plans is that when times were good auditors allowed firms to stop their contributions.

The bad news is this is no longer so and DB plans in the US and Britain in particular are feeling the pressure of having to make serious provisions on the basis of their long term commitments, he said.