The Current Pensions Outlook:
At a time when so many of us have been hoping to see some new thinking and new directions – on sustainable industrial and agricultural development, on social and environmental progress, on broader indicators of societies’ well-being than the traditional economic ones like GNP – it’s disappointing that there seems to be so little truly new thinking on most of these issues. And no new thinking about peoples’ incomes, both present and future. No new thinking about different ways of working and earning; or about social protection; or about pensions.
In the context of the current discussions about government formation, it’s particularly disappointing that the three parties involved don’t seem to have moved beyond arguing about whether the State Pension age should be 66 or 67. They all seem to accept the worn-out mantra that the only way of dealing with increased longevity is to keep raising the pension age, as if there was no alternative. But, of course, there is: start pension contributions earlier! Make sure everyone has a chance to save enough for a decent pension, at whatever age they wish to retire! It’s not rocket-science!
However, the costs and details need to be carefully considered and calculated. For many years, SIPTU advocated the idea of ‘going the whole hog’ and starting pension contributions at birth. Why waste the first 20 or 25 years when a small ‘pensions pot’ could be building up? Why not start the savings habit early? We suggested, in successive pre-Budget submissions, that these ‘baby pensions’ could be a good successor to the SSIAs, but for the most part were studiously ignored (or ridiculed).
It's Never Too Early to Save:
More recently, Chris Johns in the Irish Times suggested a similar idea: that every baby be given €5,500 which would be earmarked and safely invested so as to eventually produce a pension. Not only did he place this in the context of reducing income inequality in the future, but he put figures on what this would be likely to produce when the person retired (the equivalent of the current State Pension). The SIPTU proposal, on the other hand, envisaged a once-off addition to Child Benefit, which would be augmented, over the years, by tax-free contributions (within strict limits) – initially by relatives and others (e.g. by way of birthday/Christmas presents, Communion money, etc.) and later by employers and the grown-up babies themselves.
Obviously, the way in which these pension funds would be looked after and invested would be extremely important. Some, or preferably all, should be invested in socially and environmentally friendly and sustainable areas such as forestry, fruit and vegetables, so as to give good immediate and long-term returns to the taxpayers who have helped to build up these funds.
Similar investment principles should also apply in the case of existing pension funds – the many occupational and personal pension funds which have been built up with the help of tax-relief and which should continue to be supported (alongside, or integrated with, whatever new pension funds are brought into being), on condition that they bring benefits to society as a whole.
Other Areas in Need of Forward-Thinking:
Other areas in which change is needed include the introduction of greater flexibility of retirement ages; and the need to co-ordinate this with the State Pension age, which may necessarily have to be fixed, e.g. at 66. In many cases, private sector employers will need to review their overly rigid contracts of employment and collective agreements, so that people are not, for example, forced out of their jobs at 65 and then obliged to wait until 66 for the State Pension, perhaps being obliged to claim a social welfare payment in the meantime (which of course just throws the cost back onto the state, ie. the taxpayer - as well as being administratively wasteful; and irritating for the retiree).
The diversity of the workforce and the need for different retirement ages for different people and different occupations, make greater flexibility in this area all the more important for the future. But the only realistic way it can be financed is for people to start saving for pensions earlier and for employers and the state to facilitate and help with this. There’s no point saying you want to retire at 60, on a good pension, if this hasn’t been financed well in advance. Current provisions for last-minute AVCs (Additional Voluntary Contributions), made from lump sums like redundancy or other payments when employment ceases and designed to boost pension entitlements, are not a solution for everyone.
Cause for Concern:
I read with horror (Irish Times, June 10) that FF, FG and the Greens were considering the idea of enabling would-be house buyers to ‘raid their pension pots’ in order to help buy a house. The writer, Eoin Burke-Kennedy, rightly described this as “one of the crazy, hare-brained ideas being considered” – encouraging people to dissolve some of their retirement savings “to deliver the necessary profit margins for builders”. He also cited a lot of other good reasons why such an idea should be totally rejected, including the fact that most people don’t have enough pension savings in the first place.
Hopefully that ‘hare-brained’ and dangerous idea will be discarded and replaced with some commitment to an early and comprehensive review of pensions policy, including a willingness to give serious consideration to some progressive, radical reforms of our pensions system. We have good foundations on which to build a better system; and the last government made progress on the long-standing issue of auto-enrolment which could now be usefully extended and improved upon.
We can only hope.
Rosheen Callender served as an Economist and Researcher with the ITGWU and then SIPTU from 1973 to 1995. She was later SIPTU’s Equality Officer, from 1998 until 2008, and represented ICTU on the Pensions Board for many years.