How State promotes ‘serious inequities’ in pensions

THE recent report from the Irish Association of Pension Funds (IAPF) that there has been a significant decline in the number of defined benefit pension schemes offered by employers is confirmation of one of the worrying developments in the pensions area.

The IAPF’s report showed that employers are increasingly choosing to offer defined contribution schemes, which means there is a transfer of responsibility and risk away from the employer towards the employee.

In a defined benefit scheme, the amount of income an employee receives on retirement is guaranteed, whereas in a defined contribution scheme the amount of money paid in is set, but the amount of income received on retirement is not.

The IAPF’s report follows the publication of a book, Choosing Your future: How to Reform Ireland’s Pension System) by TASC, the think-tank for action on social change.

It was written by the Trinity College Pension Policy Research Group and shows that Ireland has one of the highest rates of pensioner poverty in the EU. Ireland also has the lowest State spending on social security-based pensions in the EU, at 2.5% of GNP.

The book claims that more investment is needed in the public pension system if the State is to eliminate poverty in retirement, yet all the signs are that the State will continue to encourage, through tax incentives, the private pension system.

The problem with this is private pension tax incentives don’t help the most vulnerable in society who cannot afford to take advantage of the tax breaks.

In addition, the cost to the exchequer of the private pension system through tax relief amounts to almost as much as the cost of direct expenditure on social insurance pensions for the elderly.

As only about half of the labour force is covered by the private pensions system, whereas virtually the whole labour force is covered by the social insurance system, the exchequer is providing far more support, on average, for workers who are covered by private pension plans than it is for those who are covered by the public pension system.

This is a serious inequity which is compounded by the fact that exchequer support for private pensions accrues predominantly to higher income taxpayers.

The Social and Family Affairs Minister, Martin Cullen, is due to publish the

Government’s green paper on pensions policy in the coming weeks.

It is clear that the Government’s approach to pensions is failing.

The green paper needs to point pensions policy in a new direction, one based on:

Spending a higher proportion of GNP on State pensions;

Reducing subsidies to private sector pensions;

Promoting flexible labour employment policies, enabling those who wish to do so to work beyond the age of 65; and Ensuring that pension policy is subject to routine periodic rather than ad hoc review, given the considerable uncertainties.

Paula Clancy

TASC

26 South Frederick St

Dublin 2