FOR 35 years or more, successive governments have talked about the urgency of defusing Ireland’s pension time bomb.
But, apart from one scuttled initiative, nothing has been done to tackle this looming disaster. And, if anything, this scary problem was compounded by a smash-and-grab raid by the government of the day on the National Pension Reserve Fund which eventually saw a whopping €22bn removed from the public pension pot in order to bail out greedy banks in danger of collapsing.
Perceived as verging on the criminal, the first moves in that act of burglary happened five years ago this month, nine years after the fund was set up by ex-finance minister Charlie McCreevy to help finance the State’s future pension requirements. Since then, the Coalition has replaced his fund with another vehicle which has scarcely €7bn in its coffers. The Government has also imposed a punitive levy on private pension holders, eating into their retirement funds. So, instead of getting better, things have gone from bad to worse.
The urgency was underlined yesterday by the somewhat mixed findings of a global pension survey ranking Ireland 11th out of 25 countries but 20th in terms of sustainability because of its heavy reliance on the state pension. According to Mairéad O’Mahony of the international Mercer group, which conducted the survey, despite Ireland’s 11th place and ‘could do better’ rating, the good news was that in terms of the ‘adequacy’ of the old age pension, this country ranked sixth.
However, where Ireland fell down was in its ability to continue providing that level of pension in the future. This boils down to a question of advance funding. And with only 50% of workers having pension plans, this was not enough because the state pension is funded on a pay-as-you-go basis. This means that by 2050, in stark contrast with today when proportionately speaking an average of five workers are needed to fund each pensioner, in 35 years time, the ratio will have fallen to barely two workers to each pensioner because people are living longer while the birth rate is falling.
A similar alert was sounded by Eamon Dwyer of City Life Wealth Advisors , who warned of the tendency to put heads in the sand whenever pensions are mentioned, adding the country is now heading towards a pension cliff. With the demographic nature of the population, he added that wealthy people who now enjoy a state-funded pension in their old age might not do so in the future, when those most in need would have to be looked after. He also stressed the importance of this country following the example set by other states where enrolment in a pension fund automatically kicks in at an early stage in their working lives.
While young people might be reluctant to go down that road, unless they wake up to the need to develop a habit of saving from an early age, it could make all the difference as to whether they end up having a relatively pleasing or a depressing retirement. With the country now clearly heading for a pensions disaster on a frightening scale, it is imperative that Government should not alone recognise the compelling need for action, but grasp the nettle before it is too late.
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