A detailed and comprehensive pensions report, which looks at the three main pension areas – private sector, state and public sector pensions – was published recently by the OECD at the request of the Minister for Social Protection Joan Burton TD.
A number of recommendations, which could affect everyone, were made, including the prospect of compulsory pension saving requirements being introduced as a way to increase levels of coverage. There are also recommendations for a radical reform of the state pension system and a much more aggressive introduction of changes to public sector pensions.
From the perspective of the private sector, the report looks at the future of private sector defined benefit (DB) pension arrangements. It is particularly critical of the adequacy of existing member protection requirements and concludes that “at any rate, the future for traditional DB plans in Ireland is rather bleak given the current funding situation, longevity risk and investment challenges”.
Any mandatory pension saving structure introduced in future years will almost certainly be on a defined contribution (DC) basis. In the meantime, it is clear, at least for those in the private sector, that much greater individual reliance on individual savings (along with employer support where available) through DC pension arrangements will be the new norm.
The proposals in relation to the state pension include moving to a fully means tested benefit in place of the (near) universal benefit that is currently available. This would result in a reduction or complete stoppage of the state pension benefit for many current retirees. The proposals put forward also include eliminating the household benefit package and free travel allowance by incorporating them as a monetary amount into a means tested core benefit.
In relation to public sector pensions, the report identifies that more could be done to reduce government liabilities for public servants, and to ensure more equity between public and private sector workers. The report specifically recommends acceleration of the planned changes to pensions for public servants, to impact existing staff and not just new recruits, and also says that any pension scheme for the private sector should also cover public servants.
So, in conclusion, there is no doubt that Ireland’s current pension policy will dramatically change in the coming years. From the Government’s perspective, it has to take the necessary actions to avoid the system hitting the various icebergs that the OECD and others have clearly outlined in this report. For individuals with DC pensions, they need to look out for themselves and pay particular attention to governance, contribution levels, investment choices and costs.