Call for action on pensions

PAYMENT rates to defined contribution pension schemes will have to be addressed immediately a leading actuary warned yesterday.

James Kehoe, of consulting firm Mercer, said the real pensions' time bomb in Ireland is the inadequacy of contribution rates to defined contribution plans and that this heightens the need for protecting pensions for lower paid workers in particular.

Mr Kehoe told the Society of Actuaries in Ireland conference in Dublin yesterday if the country is to continue to be so reliant on voluntary pension provision, then it must find a way of sharing the risks associated with voluntary pension provision more equitably including with the Exchequer.

He said that due to the growth in defined contribution pension schemes "the reality is that, relative to the situation which prevailed 10 years ago, there are now almost four times as many employees ... taking on all of the risks associated with voluntary pension provision".

As a means of protecting pensions for lower paid workers in particular, Mr Kehoe recommended that the Government consider giving employees and other standard PRSA beneficiaries the option of making a transfer payment to a State fund, such as the National Pension Reserve Fund, to supplement their weekly social welfare pension.

On the issues of retirement ages and increasing life expectancy, he warned increasing the social welfare retirement age would disproportionately disadvantage the lower paid.

He added: "It would be far more constructive for the social partners actively to promote a system of gradual retirement so the opportunity to continue working in a reduced capacity would be available to those who need to work and to those who simply want to work."

The conference was told that improvements in life expectancy, together with falling birth rates, meant that older people will make up a much greater proportion of the population in the future.

At present, less than 500,000 people are over 65, but by 2050 more than 1.25 million people will be over 65 and that by 2050 there will be only two people of working age for each pensioner, whereas there are currently almost six people of working age for each pensioner.

As a result, it is forecast that the cost of providing State pensions will increase from a current level of 2.9% to 7.9% of GDP.

A study by the society found the best way to reduce the cost of State pensions would be to raise the retirement age.

The Minister for Social and Family Affairs Mary Coughlan said yesterday it is important to "encourage and facilitate those who would wish to extend their working lives after normal pension age".

But she said increasing retirement age to 75 years of age was not on the Government agenda.