Pension reform: “The financial well-being of our future retirees should not be left to chance”


The government’s approach to tackling retirement and retirement issues in Ireland has revealed a worrying trend.

n June 2020, the Program for the Government engaged introduce a new system of automatic affiliation to pension schemes. We haven’t heard anything since.

At the end of 2020, an interministerial working group produced a report on ways to simplify occupational and individual pensions. While a few of his many recommendations were adopted in this year’s finance bill, most were not.

Barely a mention was made in the budget of pension matters – despite the publication of the Pensions Commission report earlier this week, which examined the sustainability of our public pension system and the question of the age of retirement. retirement.

In a week the OECD warned that developed countries – including Ireland – faced a “budget time bomb” over future pension costs, the Mercer CFA Institute’s Global Pension Index (MCGPI) revealed that the sustainability of the Irish system is rated at a worrying level. . It is the 25th out of 43 countries evaluated.

The report warns that “the financial well-being of our future retirees cannot be left to chance”.

Recent government decisions could worsen this situation. The planned gradual increase in the state’s retirement age was suspended earlier this year, and the 2022 budget added an additional € 5 to the state’s weekly pension. While this is good news for retirees today, it does mean that the state pension is becoming more expensive and perhaps unsustainable.

Given that current workers fund the state pension payments of current retirees, it is worrying that the worker-to-retiree ratio will drop from 4: 1 today to 2: 1 by 2051.

The Pensions Commission notes that if we continue as we do, an annual deficit of the Social Insurance Fund of 2.3 billion euros is expected by 2030, rising to 13.4 billion euros of here 2050. Those are huge numbers.

Reintroducing the increase in the legal retirement age, allowing more flexible access to public pensions and creating a more solid and transparent funding structure are all recommendations suggested by the Commission that make sense – but implement them successfully will require going beyond short-term political considerations. .

The MCGPI report indicates that one of the key answers to the question of state pensions lies in improving the adequacy of supplementary retirement income. This means increasing the number of people saving in occupational and personal pension plans and removing barriers to saving.

About 65% of workers here are covered by supplementary pension schemes. But the evidence shows that the introduction of automatic enrollment could have an immediate positive impact. The UK’s automatic enrollment system enabled 90% of workers to have a private pension in 2020, up from less than 50% in 2012.

More must also be done to encourage higher levels of individual savings, by increasing age-related limits on tax-exempt pension contributions.

Allowing individuals to access savings in certain situations, such as those in financial difficulty or buying a first home, can also be effective.

Finally, there must be a flexible environment in which people can work longer and continue to save for retirement, if they need or want to.

The government has the information it needs and a whole range of expert recommendations to consider. It’s time to take retirement savings seriously and make decisions

John Mercer is CEO of Mercer Ireland


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