Long-term planning essential

Taking the uncertainty out of people’s long-term financial future, or at least giving them the opportunity to make real provision for it, is something practical which the Government has come up with in their plans for an innovative pension scheme in the new year.

On the face of it, the scheme will offer an opportunity to the considerable swathe of workers who do not currently have pensions to make provision for the future. At the moment, 50% of the workforce are without pension cover and 70% will need extra cover if they hope to maintain the standard of living they have during their working life.

Those are shocking and very worrying statistics and if allowed to go unchecked the emergence from employment by countless thousands of people without pensions, or inadequate ones, would pose very serious societal implications into the future.

Importantly, employers who do not provide a pension scheme will be obliged to co-operate with employees who want to take advantage of the new Personal Retirement Savings Accounts (PRSA), although they will not have to contribute to them.

Hopefully, this new initiative will encourage younger people to give more thought to providing for the future than is traditionally the case. Too many young people, on taking up employment, believe in living for the moment without giving any regard to the fact that every day brings them nearer to retirement age.

With the current trend throughout most industries tending towards a greater mobility of workers, and more and more people working under terms which effectively make them independent contractors, rather than employees, the need for individual pension provision is probably more pressing than heretofore.

Yesterday the Irish Small and Medium Enterprises organisation painted a very bleak picture of what lies ahead for the economy for next year, signalling that a considerable number of companies are expected to employ less people in the coming 12 months.

Coming after a year in which domestic growth was slow, and during which the effects of a sluggish international economy on multinationals was graphically illustrated by either closures or redundancies, the ISME forecast is exceptionally gloomy.

External influences will also impact on employment in the indigenous manufacturing sector, which, when all factors are considered, makes a flexible pension plan an attractive and prudent move.

The first ones to be approved should emerge early next year and will afford a greater insight into how they work and the benefits that could eventually accrue from them. There may be reservations in some quarters towards the PRSA scheme but these should be reassured if the concept outlined by the Government is implemented in the way in which it is intended.

The Government says the new accounts will be a low cost, easy access investment scheme which will allow workers who switch jobs to save in a flexible way. All major financial institutions will be offering them and they will be exempt from a series of bank charges and benefit from tax relief.

It is crucial that the Government guidelines are adhered to and that financial institutions are strictly policed to prevent any advantage being taken of people who would be very wise to invest in the PRSAs.

Eventually, other organisations such as credit unions, building societies and An Post may enter the market, a development which would also be very welcome.