Comment: The recent intervention by the Society of Actuaries into the debate about the future of public service and social welfare pension provision in Ireland was not a positive contribution, writes Fergus Whelan.
The society claimed that, as the ratio of workers to pensioners is set to fall over the next 50 years, workers could be forced to work until their 75. Similar logic would suggest that if we forced workers to work a little longer, we could all die at work and would not need a pension system at all.
Their statement obscured more than it revealed about the problems of our public pension system. While we have a problem with an ageing population and a declining birth rate, it is a problem that can be managed and does not require the dismantling of public pension provision.
It is not true that our problems are on a scale with the pension provision problems of other European countries. In most western European states, the government provides a pension at 65 at a level of 66 per cent of earnings. In Ireland our contributory old age pension yields about 30 per cent of average earnings.
The Society of Actuaries has also chosen to forget that we have a Pension Reserved Fund in place to smooth the cost of the growing number of pensioners across the generations. There are not enough workers in funded occupational schemes here and those that are, are not paying a sufficient contribution to ensure a reasonable level of pension in retirement.
However, 50 per cent of the workforce having some element of private occupational pension takes considerable strain off our public system. This is not the case with those countries in Europe which are deemed to be heading for pension crises, not least because the full pension is provided from the public purse.
Making public pension policy decisions on the basis of ratios of workers to pensioners misses two important factors. Firstly, there is the productivity factor. Two workers to one pensioner might be a worrying prospect if the workers concerned are two farm labourers with large families who generate very little surplus value over and above their own survival needs. If, however, the two workers were software designers with small families and a much greater capacity for generating surplus value, then the problem is not nearly as acute.
Secondly, a declining birth rate frees up resources from child dependency, which could be redirected to age dependency.
I do not blame the society for being controversial and gaining publicity in advance of its forthcoming conference. However, it is disappointing to see it allying itself with the New Right in Europe. Berlusconi and others are attacking public pension provision and are trying to break down the bonds of social solidarity.
This social solidarity meant that past generations of workers agreed to look after the pensioners of their era on the understanding that future generations would do the same for them.
Creating uncertainty about the future entitlements of pensioners is designed to have the effect of creating resistance to funding social insurance. This is what happened in Thatcher's Britain. The result is that many British pensioners are in poverty and receive a public service pension which is less than 50 per cent of what Irish pensioners enjoy. Let us be absolutely clear. Workers and their employers pay PRSI contributions because they believe it entitles the worker to a decent pension at 65.
The economist Mr Paul Samuelson states: "The great beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given the benefit of privileges that far exceed anything he has paid in. How is this possible? It stems from the fact that the national product is growing at compound interest and can be expected to do so as far ahead as the eye can see."
Of course, a declining birth rate and increased longevity poses some threat to this model. The answer is to improve labour market access and participation rather than to dismantle our pension system. Let us end long- term unemployment. Let us do something for those parents who have two children but will not have three because one partner will be forced out of the workforce due to the high cost and low quality of childcare provision. We could also design an immigration policy to provide opportunities for young, fit and willing workers from outside the EU to help us to increase our GNP.
The Society of Actuaries appears to see that we are living longer, healthier lives as a problem. Trade unions have a more optimistic view. However, we will be forced to re-evaluate some of our practices in the light of our increasing longevity. The practice of forcing people to retire once they have reached a certain age, regardless of their health or their willingness to continue working, may not be tenable in the long run. We may have to look at the practice of dealing with redundancy situations by forced early retirements. These have the effect of forcing people into the pension system early, when it is likely that they will live longer. This not only puts the system under strain, but is probably not in the best interest of the people involved.
The key, however, is flexibility and choice. People who can and are willing to continue working should be facilitated and encouraged. We should not allow right wing political elements or the Society of Actuaries to scare us into dismantling our public service pension system. Our system is not perfect. However, in comparison to our neighbour, we have a system we can be proud of. Our pension system is, and will continue to be, sustainable if we manage other areas of social and economic policy well.
Fergus Whelan is spokesperson on Pensions Policy for the Irish Congress of Trade Unions
