Saving up pension woe

Article appeared in the Sunday Time Business section September 14th 2015 

The return of the generals of the Celtic Tiger Boom and Bust – McCreevy, Ahern and Cowen – in front of the Banking Inquiry, attracted huge media attention, and was no doubt a welcome distraction for the current government. For me, the Banking Inquiry is a waste of millions and public resources to tell us what we already know.

Rather than focusing on the mistakes of the past, these resources should be allocated to mapping out a more sustainable Ireland for the future.  As we look forward, one of the biggest challenges yet to be addressed is the looming pension crisis, as a large group of the population faces retirement with inadequate pension provision.

The state pension only going to cover basic sustenance). It is unfunded, backed by no assets and paid through the current tax take. The current workforce in Ireland funds the state pension for those pensioners who have reached retirement, a burden maybe we can afford at present with a population that has an estimated five workers for ever pensioner. However, the inevitable tipping point awaits, with the ratio of workers to pensioners continuing to drop as the population ages, and expected to fall to a ratio of 2:1 by 2050.

Then there is the elephant in the room, the egregious public service pensions, particularly at the high end. It too is unfunded and paid for by the taxpayer trying to save through a private pension.

Is it any wonder that people are so apathetic when it comes to saving for retirement? Why in God’s name are we, the Irish taxpayer, paying Bertie Ahern and Brian Cowen more than €134,000 a year in pension benefits, soon to be increased to €136,000, with an unfunded pension crisis looming around the corner?

So what needs to be done? Well, the OECD has recommended that coverage in funded pensions needs to be increased and can be achieved through: “compulsion; soft-compulsion, automatic enrolment; and/or improving existing financial incentives”, arguing that a compulsive sign up is the “the least costly and most effective approach”.

These options need to be explored further.

While pension reform might be a long time coming, private sector workers have to take a more active approach to planning for retirement. The younger people start contributing the better, no matter how small the contribution is, as it becomes as much a habit as anything else.

Companies also need to play their part; a matching contribution demonstrates to staff a company’s commitment to the future of their employees, encouraging member participation. Members should plan for retirement on the basis that the State pension cannot be relied upon.