Addressing an old-age problem

PLANNING FOR the future has been a much discussed topic, with pensions frequently topping the list. With good reason too. The population is living longer, with life expectancy for men predicted to increase from 76 years to 84.6 years by 2061. Meanwhile, women will live to 89, instead of 81.1 years.

The percentage of the population aged 65 and over is projected to more than double between now and 2050, rising to 28 per cent. It all increases the burden on State coffers, and fuels the fear that we are expecting more from the pensions system than it can deliver.

However, 2008 may see some changes, with the Social Welfare Bill and the consultation process on the Green Paper on Pensions, published in 2007, set to run until mid-2008, after which the Government will produce a long-term framework for pensions.

"It's a challenge for us to make sure that people understand as clearly as possible the pensions issue so that the appropriate decisions can be made," says Brendan Kennedy, chief executive of the Pensions Board, which regulates the industry. "It's important that pensions decisions aren't a private decision made by an inner group of experts, because pensions are so important and are going to cost so much money that they have to be a broadly-based decision."

Recent research has indicated that awareness that pensions are an important issue is very high.

"Getting people to make that step from being aware of pensions and maybe feeling a bit guilty about it, to actually doing something about it is a big step," says Kennedy in his first major interview since succeeding Anne Maher last year.

According to the Pensions Board, 62 per cent of those in the workforce aged between 30 and 65 are making provision for a pension, a 4 per cent increase since 2002. However, it still falls short of the current target recommended in the National Pensions Policy Initiative of 70 per cent.

The green paper contains suggestions that are up for debate, such as leaving the system as is, or increasing the social welfare pension further. The Government has already committed to increase the State pension to €300 per week by 2012. But retaining the current system would mean that in the short- to medium-term about 47,000 mainly retired public servants and self-employed people would remain outside the remit of the social welfare pension.

The introduction of a mandatory private pension, forcing people to save for their retirement, has also been considered.

"In Ireland, as a society, if you look at how much we are currently saving for pensions, that is not going to provide the kind of pensions we expect. There is a gap between our targets and our savings," says Kennedy. "One of the fundamental issues about the green paper is what are we going to do about this.

"Obviously if you order everybody to save you achieve your targets by definition. But there are pros and cons and there are lots of arguments for and against mandatory pensions. The thing is there is no answer to the pensions question that has no drawbacks."

Irish workers may see the introduction of "soft mandatory" pensions, where they must sign up to the scheme but can drop out if they so wish a few years later.

Incentives for saving for retirement, including an SSIA-style pension, replacing the current tax relief structure, have found favour in some quarters. At present, the less tax you pay, the less incentive there is to have a private pension.

Changing this system may encourage more lower-paid workers to invest in pension plans outside of the State benefit, as each worker would benefit equally regardless of their income level.

The Social Welfare Bill will also bring some changes to the sector. Under the new legislation, the Pensions Board will be given extra regulatory powers over pension administrators, and will put obligations on trustees and their employers for trustee education. "Trustees are usually employees of the company; they're not financial professionals. They take on the responsibility of looking after their co-workers' money. It's a big responsibility," explains Kennedy.

However, many trustees hand some of the management of the pensions over to consultancy firms, insurance companies etc, who fall outside the remit of the Pensions Board. It will also be more efficient for the board to deal with the 200 administrators it expects to register with it, instead of the 100,000 pension schemes currently in operation.