Government needs to act on pensions

Getting a fix on the scale of Ireland's pensions problem is increasingly difficult. It was reported on Tuesday that the hole in the final salary, or defined benefit pension funds of Ireland's largest companies – constituents of the Iseq-20 – had almost doubled in the first seven months of the year.

That’s bad enough but doubled from what? As it happens, the figure at the start of the year was itself a major problem – a hole of €2.9 billion.

Since then, already low bond yields on which fund liabilities are based for accounting purposes have gone even lower (see below). And investment returns, upon which funds rely to grow their invested assets, are proving more elusive – at least without assuming levels of risk that are anathema to most pension funds.

Funds are turning both to alternative asset classes to try to secure returns and to crossing their institutional fingers and hoping interest rates return to more normal, higher levels.

The noxious funding cocktail affects not only the Iseq 20’s pension funds, of course, but all final salary schemes.

The other privately funded pension model – defined contribution – is also exposed to the low investment returns on contributions that in almost all cases are anyway too low to deliver expected levels of replacement income in retirement.

At the same time, having assumed the future pension liabilities of the university sector back in 2009, the State is now bringing even more people into the only partially funded public purse by accommodating staff at the Central Remedial Clinic in a move that may yet open the door to others.

Even with all that, barely half the population has any occupational pension cover at all. Strip out the public service and the private sector figure is truly woeful. Anyone else is entirely dependent on the State pension, which is payable from the Social Insurance Fund. Auditors have warned repeatedly that there is a financial hole in the fund and that it is getting bigger by the year. The choices – either reduce the benefits payable to people or increase the contributions.

No matter how you look at it, it’s a grim position. And it’s long past time governments stopped talking and consulting, and started taking action. Otherwise most people are heading for impoverished old age.