Pensions time bomb - A deepening crisis we must tackle

Today, when a woman reaches the traditional — if now nominal for so many — retirement age of 65 she can expect to live for another 21 years.

A man who retires at the same age will have to provide an income for himself for another 18 years.

Though it is something to be celebrated, the greater longevity supported by healthier lifestyles, science and improved nutrition raises obvious questions about pension sustainability. Older, deferred-income models, where a pension supported a retired worker for a few years rather than a few decades, are no longer appropriate. Obviously, for those who retire before they reach 65, the post-work segment of their life will be longer and put even greater pressure on pension schemes, public or private. Even before the recession bit Ireland’s workers and employers faced a pension crisis and despite a series of doom-laden reports little enough, if anything at all, has been done to prepare for a well-flagged day of reckoning.

Unfortunately, because the issue seems so remote, there is a dangerous hope that pension issues can be set aside for another day or, as any government might prefer, for another administration. History does not show that too many governments have been toppled over pension difficulties though the strikes threatened at airports on Monday point to the scale and immediacy of the challenge for those affected.

It is known that the great majority of defined benefit pension funds are so in deficit that their survival is in very real doubt. Their members will have to survive on an income far lower than the one promised or funded during their career. Exacerbating the situation cash-strapped workers have cut back on pension contributions possibly making a grim situation even worse. The abysmal performance by most of Ireland’s fund managers acts as a disincentive to retirement saving too as does the Government levy on private pension funds no matter what their status. The proposed changes to tax allowances for pension contributions — rather than a ceiling — will also have an impact on the ability of workers on very ordinary incomes to build up a useful pension pot.

A report commissioned by the Government warns that the Social Insurance Fund — the destination of all PRSI payments and the source of a huge range of benefits including state pensions, had a shortfall of €1.5bn last year and that, without dramatic re-engineering, it will reach €324bn a little after mid century.

This is an issue that has great relevance for all of society and for all generations. Unless it is confronted immediately those working in say, 20 or 25 years, can expect an unfair and disproportionate tax burden to make up funding and pension deficits. This would be yet another unfair imposition on a generation already suffering more than their share of pain for a crisis they did not cause.

In a matter of weeks Finance Minister Michael Noonan will present a very difficult budget to the Dáil. Cuts will dominate but if he was to announce the appointment of a junior minister to try to find some solution, even if it is decades away, to the pensions crisis then at least there would be one note of optimism, a suggestion that austerity has a purpose other than balancing the books. This crisis will have to be faced sooner or later, why not now? Waiting seems a waste of time and more than dangerous.