Pensions future looks grim for private sector

PRIVATE sector employees, it’s time to quit the job and go to work for the Government. That’s if you want a decent pension to retire on.

The Economic and Social Research Institute (ESRI) this week became the latest body to ring alarm bells about the pensions disaster that awaits people who are in their twenties and thirties when they retire.

But these bells sounded different. The system’s unfair, chirped the ESRI, but not in the way we might have expected. Instead, it figures the Government is spending too much on tax breaks to encourage private sector workers to look after their pensions for themselves.

So, while private sector employees are already having trouble being persuaded of the need for taking out a private pension, the ESRI is suggesting it’s more appropriate to take away the carrot. Charming.

The sleepwalking continues. It’s hard to get worked up about a possible crisis later this century when the current atmosphere surrounding retirement looks so rosy. Right now, it’s commonplace to hear many people in their fifties saying they’ve had enough of working life and their employers are offering generous packages to put them out to pasture. But this won’t continue.

The current system could cope with pensioners who didn’t hang around too long after getting their carriage clock, but people planning on having a retirement lasting 30 years or more are deluding themselves if they don’t do their sums.

Lengthy retirements are an expensive business. It’s hard to pay for 30 non-earning years with an average working life of just 40 years. The Pensions Board wants private sector workers to put aside between a quarter and a third of their income towards their pension.

This would wipe out disposable income and is a hard-sell to people who want to live now instead of worrying about 40 years’ time.

Tax breaks are one way to make the medicine easier to swallow.

But many private sector workers still aren’t interested, which suggests the pensions deal needs to be more attractive, not less. At the same time, many workers with employer-run pensions are being squeezed without realising it.

Employers are getting out of the pensions business by phasing out schemes that guarantee their staff defined benefits, such as two-thirds of final salary when they hit the road.

Instead, the workforce is being sold the pup of defined contribution pensions, where the employer pays a fixed percentage of their salary into a scheme but washes its hands if the investment fails to grow as much as staff need for a comfortable payoff. It looks grim if you’re in the private sector.

There’s not much to look forward to in retirement, unless you have hundreds of euro to spare a month and can plough it into a pension scheme in the hope it works out.

But what if you could wake up one day and have a generous pension guaranteed by an employer that’s raking in billions every year?

You might be prepared to take a lower salary in exchange for that kind of security about your future.

Research by bank union IBOA claimed civil servants and other public sector workers are earning about 10% more than their equivalents in the commercial world. The controversial benchmarking process for setting public sector pay curiously failed to take account of the pensions difference.

So for those thinking long term, the public sector is the place to be. But if turning logic on its head is your game and you think the grass is greener off the government payroll, at least you’ll always have a friend in the ESRI.