Pensions framework - Proposals are just the first steps
Whether it works or not only time will tell – just like a pension scheme.
The simmering and unavoidable pensions crisis has to be addressed in a vigorous and realistic way. The consequences of not doing so would be disastrous, as some Waterford Crystal workers will confirm.
Because of this, the basic tenor of the framework is simple enough: we can all expect to have to work for longer than we had hoped, only to end up with a retirement income below our expectations.
Undoubtedly disappointing, but economics and demographics seem to combine to give that scenario an irresistible momentum.
This is a tacit declaration too that the State can only do so much and that we are all obliged, according to our means, to make some provision for our retirement.
It is an acknowledgement too that the situation as it exists, where around half of the workforce are utterly dependent on State pensions, cannot continue.
The mandatory – more or less – elements of the proposals begin to address this. However, the great difficulties of satisfying the basic needs of an ageing population expected to live far longer than their parents, while the cost of pension provision soars, remain challenging.
Demographic projections put the crisis in context. In time, just a few decades, there will be far fewer workers to support pensioners. Today, six people of working age support every one aged over 65, but by mid-century this ratio will fall from six-to-one to two-to-one. Under current tax arrangements that would be unsustainable. State spending on pensions will account for 15% of national income, three times today’s cost.
Neither is it surprising that the retirement age is to be raised to 66 for State pension purposes in 2014, 67 in 2021 and 68 in 2028. It reflects what is happening across Europe. Britain plans to increase the retirement age to 68, while Spain, France, Germany and the Netherlands are considering similar proposals. As public debt continues to rise and substantial budget deficits will be with us for the foreseeable future, governments want to cut their pension obligations and making us work for longer is one of the easier ways of doing that.
Like every set of proposals, there are loopholes and unanswered questions. One concerns workers whose contract of employment ends when they reach 65. At the moment they enjoy a bridging pension for a year, until they are entitled to a State pension. Will that facility be extended to match new retirement thresholds?
The great economic crash has forced us to accept new realities and adopt a more rigorous approach to spending. Pensions investments cannot be exempt from this and if NPF encourages – or forces – more of us to prepare in a realistic way for retirement, then it is a reasonable start to facing up to an unavoidable challenge. We must not pretend, however, that there is not a lot, lot more to do.
CONNECT WITH US TODAY
Be the first to know the latest news and updates
