Pensions crisis - Act now to safeguard the future

IT is no exaggeration to describe Ireland’s pension crisis as a time bomb waiting to explode.

The glaring need for decisive action is acknowledged by Social Affairs Minister Seamus Brennan, who sees this vexed issue as a major plank of Government policy.

As things stand, however, 900,000 people have made no pension provision whatsoever.

This means that at present it takes 4.3 workers to fund each pensioner in the country.

Worryingly, this scenario is steadily getting worse and by 2026 the burden will fall on the shoulders of two workers paying for every pensioner. So low will the ratio be by 2056 that 1.4 workers will end up paying for each pensioner.

Unfortunately, most people’s eyes tend to glaze over when pensions are mentioned, but the economic implications of the above figures are so frightening they cannot be ignored.

Predictably, this crisis in the making dominated yesterday’s launch of the National Pensions Review, which recommends major changes with the aim of boosting personal retirement packages.

But since the decision is ultimately not Mr Brennan’s to make, he intends holding ‘discussions’ with Finance Minister Brian Cowen, who has already indicated he would consider bringing forward measures in the upcoming Finance Bill to address the vital question of pension coverage.

These “tough talking” ministerial sessions will strongly influence one of the most far-reaching decisions likely to be made by this or any other Government.

Potential solutions range from an SSIA-type scheme outlined in the report to a novel idea involving what Mr Brennan calls “soft mandatory pensions” for the entire population.

If a savings scheme were introduced, the Government could match personal investments in pensions on a euro-by-euro basis. Alternatively, savings could be ploughed into pensions under tax relief incentives.

Other possibilities include allowing people take lump sums out of their pensions before the age of 45. The notion of increasing tax relief for personal contributions from low earners is also on the cards.

Intriguingly, Mr Brennan is known to favour the concept of soft mandatory pensions similar to an Australian system requiring that everyone enters a pension scheme by law. While they can opt out later, the scheme ensures the population is covered.

Significantly, Mr Brennan has asked the pension group to go back to the drawing board with a view to producing a view on the Australian system.

The outlook is that two out every three citizens in the pension age bracket will become totally reliant on a State pension. Ominously, with people living longer, many are now facing into their latter years with only the State pension to fall back on.

But with a new Pension Board in place, and an election looming, this explosive issue is in danger of being put on the long finger again.

Arguably, an SSIA-style scheme, which has proven effective if costly, warrants consideration as a stopgap way of encouraging vulnerable people to invest in their pensions before it is too late.