After the Budget there was lots of focus given to the anomaly in the State pension system that left many workers – most of them women – with less money than they might otherwise have been entitled to. However a new report suggests that that is just one of the issues facing the pension system here, with its sustainability in particular being flagged as an area of concern.
The Melbourne Mercer Global Pensions Index ranked Ireland 12th out of a survey of 30 countries, but the country got a D grade in terms of sustainability.
“We actually rank third out the 30 countries in terms of the adequacy of benefit that the system is targeting but we’re 20th in terms of sustainability,” said Peter Burke, senior defined contribution consultant at Mercer Ireland. “There are a few factors that go into that – one being the coverage level of private sector savings in relation to retirement and the other would be the fact that we’re living longer so any pension needs to be paid for a longer period of time.”
That creates a particular pressure on the State pension, he says, as the system is on a “pay as you go basis”. That has worked in the past because there have always been enough workers to spread the cost of retirees – however that balance may shift as the population ages and the ratio of employees to pensioners narrows.Those issues – and other shortcomings – have led to a significant financial hole within the Irish pensions system – something that will take hundreds of billions of euro to address, according to Mr Burke. “At the moment the research is pointing towards a figure of about €560 billion in terms of the pensions savings gap in this country,” he said. “Every year that we allow this challenge to remain as it is, the problem is just getting worse.”
One of the current problems with pensions is the fact that – at the moment – they are particularly unattractive to people due to low interest rates and the potential for low returns. As a result many will see the little gain they might make being gobbled up by fees – leaving them with little incentive to save further. Mr Burke said there is more companies can do to address this – which might make a pension more attractive to individuals.
“There’s always something that can be done in terms of fees and obviously there’s competitive pressure in the market that will reduce fees further,” he said.
However any solution to the pensions problem needs to go beyond this, he added, and include some kind of auto-enrolement system. This would oblige employers to add staff into a pension scheme automatically, which would help to boost the numbers saving for retirement in the State. “It’s where there’s a legislative change whereby the employer not only has to set up a certain minimum qualifying pension scheme but then has to enrol employees into it,” he said. “At that stage employees have the opportunity to leave that pension scheme – no-one is going to force anyone to save for retirement but the experience we’ve seen from other countries is that people tend to stay within these systems through natural inertia and that will increase the coverage level for private sector schemes and, overall, improve the sustainability of our system,” he added.Reference: www.rte.ie