Pension reform - Crisis can’t be kicked down road

TALKING about pension reform in the week international investors — they were called carpetbaggers in America’s southern states after their civil war — were invited to throw their eye over the family farm may seem incongruous but this is the very long-fingering that has our pension arrangements in such terrible and frightening disarray.

Yesterday the Central Statistics Office published figures that represent another sad epiphany of our economic collapse. They showed that workers, especially self-employed workers, were pulling back on investing in pension schemes because they could not afford to continue making contributions.

The disastrous performance of many pension schemes over recent years must have had a negative influence too. Either way the statistics remind us that we are facing a pensions crisis — unless you’re a “retiring” executive in one of our “pillar” banks of course.

Pension coverage among self-employed workers fell from 47% at the start of 2008 to 36% at the end of 2009. In comparison, coverage among employees fell from 55% to 54% over the same period.

Not only that but pension coverage remained lowest among the youngest workers. At the end of 2009 19% of those aged between 20 and 24 years had a pension, compared with 60% of workers aged between 45 and 54. The impact of our downfall, huge youth unemployment, negative equity, climbing mortgage rates and job losses too, make it inevitable that some young families must defer their pension plans.

Ironically one of the contributions to the debate has been to suggest that it be made more expensive for people to build a pension fund by reducing tax breaks on contributions. If this proposal comes to pass then the next set of statistics on pensions will probably make even grimmer reading. Surely it would make more sense, and be more equitable, to cap contributions that can enjoy tax breaks rather than slash allowances to the point that saving for a worthwhile pension becomes all but impossible. This would allow workers, invariably private sector or self-employed, to build up a moderate fund but limit the benefits accruing to those who exploit current, unlimited arrangements.

Our Government has recognised that some issues — public expenditure and public sector reform — are so pressing that they need a full-time cabinet minister. Pensions fall into this category and it would be prudent to appoint a minister to try and make sense of arrangements that have become divisive and uncertain.

It is obvious that we cannot continue as we are and that the great divide between what a public sector worker can expect and what a private sector worker has to gamble on must be resolved in a more equitable way. And, unless we tackle it straight away, the problem will get worse and even more frightening. There should be a universal pension scheme for all workers who are obliged to pay a fixed proportion of their income into it with the expectation that they will get a retirement income based on their contributions to it.

If our IMF/ECB friends make us sell the family farm to the carpetbaggers then we must insist that at least half the money goes to help Ireland, not our creditors. It would make very good seed money for an universal pension fund for us all.