A strong political will is needed for Ireland to move forward and implement a universal pension scheme which would boost pension coverage and help ease the impending pensions crisis, an Australian pensions expert has said.
Nick Sherry, in Dublin to present at an Insurance Ireland forum, was heavily involved in Australia's efforts to implement a similar scheme, as an Australian senator for 22 years and the first Australian minister for superannuation and corporate law.
The country’s universal pension scheme “MySuper” was introduced in 1987, with employers initially required to contribute 3 per cent of salary, rising to 9 per cent from 2002.
“It was a very controversial reform,” Sherry says, “it was hard going at the time.”
MySuper is mandatory, so employees can’t opt out of it. Other countries, such as the UK and New Zealand, have gone for a softer opt-out approach.
Eased state burden
MySuper has helped increase pension coverage hugely, up from about 30 per cent in the 1980s to 94 per cent today. However contributions from employees are still not sufficient; the average voluntary contribution from employees is between 3-4 per cent, Sherry says, giving an average pension fund at retirement of just AUS$120,000 (€80,501). “It’s lower than hoped for,” he says.
But the scheme has eased the state burden. “It’s been a big help; it’s not a perfect system in terms of sustainability, but it’s comparatively more sustainable than any other advanced economy,” Sherry says.
However, despite the success of MySuper in balancing the exchequer’s books, Australia, like most advanced economies around the world, has still had to increase its state pension age. It will rise to 67 from 65 by 2023. “You can’t escape it,” says Sherry.
And thanks to a means testing of the state pension, introduced in 1983, just 50-55 per cent of the population are today entitled to a full state pension, which is fixed at about 25 per cent of the average weekly earnings, with as much as a quarter of the population not entitled to a state pension.
“We’re one of the only countries that means tests the state pension – it’s saved a lot of money,” says Sherry, but concedes that it was a challenge to get implemented.
Challenging
Australia made its move during the recessionary 1980s, and Sherry bemoans the fact that Ireland did not act sooner.
“It would have been ideal to have done it during the challenging times. But it’s still worth doing; it’s better late than never.”
Sherry also has some lessons for Ireland on implementation. “We didn’t regulate and supervise the system closely enough,” he says, adding that there has been some mis-selling of investment options, while the post-retirement income stage was not constructed very well.
“It’s a central challenge that we didn’t do that well, there’s still lot of debate on that.”
