Today's pensioners were reasonably well served by Budget 2021. But what about tomorrow's pensioners? Urgent and radical planning and action is needed to prevent future poverty and increasing income inequality.
Some pensioners may have felt disappointed that Budget 2021 failed to increase the State Pension, but will have welcomed the increases in the Fuel Allowance (up €3.50 to €28 p.w.) and the Living Alone Allowance (up €5 to €19 p.w.) - especially for those who get both, a total of €47. The survival of the Christmas Bonus, and its extension to other welfare recipients, was also welcome.
There have been complaints that for many pensioners, this took no account of the increase in living costs, but in fact the Consumer Price Index actually fell by 1.2% in the year ending September 2020. However inadequate some of us may think the level of the State Pension may be, in the current context at least it has been protected, unlike the incomes of so many others at present.
Those with occupational and supplementary pensions may have more cause for worry, as many such pension funds could be suffering from a combination of low-interest returns to their fund and perhaps a fall in contribution income, depending on which sector of the economy they are in and what job losses have been suffered. There is a danger that pension funds in this category may consider reducing benefits at some stage. But most will start by first reducing the future benefits of serving staff, rather than existing pensioners, on the basis that younger members of the scheme will hopefully have an opportunity to increase their earnings and future pensions by the time they retire, unlike existing pensioners.
In fact, future pensioners should now be seen as a major object of concern. And not only for the reasons above. Stalling or postponing the raising of the State Pension age, and talking about setting up a Pensions Commission (which was promised months ago, in the Programme for Government), could turn out to be a totally inadequate response to a future crisis, unless there is a will to make very major, radical and early reforms.
The new Commission needs to be set up urgently; and needs to hit the ground running, having first studied three of the most important Reports already produced on the future of pensions in Ireland. The one on Mandatory Pensions (2006) dealt comprehensively with auto-enrolment before the term was widely known and only Australia had tried it. The one on Public Service Pensions (2001) recommended, inter alia, the introduction of an element of funding so as to give public servants some flexibility around retirement ages, etc. And the one on National Pensions Policy (1998) suggested a significant and specific level of funding for social insurance pensions, so as to smooth out the big bulge in the cost of state pensions which was anticipated in the mid-2020s.
The National Pensions Reserve Fund was eventually set up in 2001 and was building up nicely, until it was raided in order to bail out the banks during the 2008-11 crisis. The remnants of the NPRF later became the Strategic Investment Fund; and the SIF was then watered-down into the ‘Rainy Day Fund’. It was never returned to future pensioners. And now, the last €1.6 billion of that fund has been used up as part of Budget 2021.
Whatever about the wisdom or necessity of that, what’s now urgently needed is the re-establishment of a strictly-earmarked National Pensions Fund. Money is cheap at present – in fact, virtually free – and thankfully much has been borrowed for Budget 2021. There should be no hesitation about also borrowing, quickly, to set up a new pensions fund while money is so cheap. Moreover, some households have been accumulating some of their income due to the current restrictions and may well be happy to invest in a well-run pension fund that gives them a modest return, instead of paying the banks to mind their savings.
The other ‘leg’ needed, to get future pensions up and running, is the urgent introduction of auto-enrolment, combined with a massive campaign to encourage people to start saving for pensions early in life (preferably from birth!). If, as suggested by SIPTU in the early ‘noughties, a substantial once-off increase in Child Benefit could be used to kick-start ‘baby pensions’, however small, these could be built up over the person’s lifetime and could obviate the need to keep on raising the pension age. It would also help to reduce income inequality in the future, another important social objective.
This is a time for assessing worthwhile past proposals, using present predictions and resources to improve on them, and thereby building a better future for pensioners and society as a whole. The urgency of short-term actions must not blind us to the concurrent need for long-term planning and actions.
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.