The recommendations are contained in a hard-hitting report from the OECD and strongly signal that the retirement age — already set to be pushed back to 68 — should be extended further to take account of greater life expectancy.
Switching from the present “complex and inequitable” State system to a basic universal one, which could be means tested, was needed as about 900,000 workers had no personal safety net for old age, according to the review, ordered by Social Protection Minister Joan Burton.
These schemes would also be enhanced by mandatory private, or auto-enrolment, additional pension schemes.
Means testing of pension-related benefits such as free travel and TV licences, and help with energy and telephone costs, also figure in the reform package.
Ms Burton, who plans to bring the recommendations to Cabinet soon, conceded a lot of the measures could only be brought in during better economic times, as opposition parties stressed many workers could not pay pension demands at present.
The OECD acknowledged that being forced into pensions could be “politic-ally difficult”, as people may resent it as another tax.
The report praised the Australian model in which employee contributions are set to rise to 12% of salary, while employers add 9%.
OECD director of employment, labour, and social affairs John Martin said: “We hope there is enough political will and that people are far-sighted enough to recognise that we have to make some difficult choices. We have talked enough about it at this stage.”
As well as public servants moving away from the current final salary pension scheme, all private sector workers would be obliged to pay into private pensions under the OECD plan.
The institution warns that financially “healthy” firms must not be allowed to abandon pension liabilities after a number of big companies moved to end final salary schemes.
The increase in life expectancy may mean some schemes may not pay out until the age of 85, the report advises.
The OECD is critical of the “unequal treatment” of public and private sector workers due to the dominance of defined benefit, or final salary, plans in the public sector as opposed to defined contribution schemes — in which the employee bears the financial risk — in the private sector.
A obligatory, or auto-enrolment, defined contribution scheme in private firms should also be pushed out to public workers, according to the OECD.
While the Irish situation is generally good, the report notes a “misalignment” in tax relief which favours high earners over the low paid.
The main recommendations from the OECD report include:
* Retirement age pushed back beyond 68.
* Obligatory pension schemes for all.
* Means testing may be imposed on State system and spinoff benefits such as free travel.
* Financially strong firms must not be allowed to abandon schemes that favour employees.
* Pensioner poverty levels lower here than internationally.
* Government admits it could only be brought in after economic recovery.