Pensions plan should reward new Huguenots

Economics: At the back of the Department of Finance's headquarters in Dublin's Merrion Street can be found a little cemetery. In that little plot may lie the answer to the mysterious case of William Beausang, as well as to the related puzzle of where this Government stands on the issue of mandatory pensions provision.

As the Minister for Finance's nominee to the Pensions Board, William was in the news last week as he described its recommendation to pursue a mandatory pension scheme as "unworkable". The department that nominated him later disassociated itself from his remarks.

William was engaged in a battle that would have been familiar to his ancestors: the battle now raging in this country between paternalistic centralism on the one hand and self-reliance and liberty on the other.

For the name Beausang - "true blooded" in French - is no ordinary name. It is a proud name, a Huguenot name. A religious minority in 17th century France, the independence, integrity and industry of the Huguenots made France the most powerful country in the world.

But their belief in free expression and self-reliance, not to mention their staunch dislike of absolutism, induced hatred among Louis XIVth's courtiers.

In 1685, the courtiers kicked the Huguenots out of France. Taxes and bureaucracy grew and industry declined - as a result of which France lost its hegemony in Europe forever. France's loss was Ireland's gain: many Huguenots came to Dublin and some now lie in the little Huguenot cemetery not a stone's throw from where William Beausang works.

But I digress. The remit of the Pensions Board's latest report, examining the issue of mandatory pensions, was to propose ways of enhancing pension provision - a position the Government has also to sign up to in the latest Social Partnership agreement Towards 2016.

At present the State contributory pension provides most citizens with a guaranteed pension, but this only amounts to around one-third of Gross Average Industrial Earnings (GAIE). That share should rise to 40 per cent, according to the board's first key recommendation.

The second "recommendation" is more of a polite suggestion. Finely balancing different views of the Departments of Finance and Social Welfare, it meekly calls for a second mandatory pillar of pension provision. Employers, employees and the Exchequer would each contribute 5 per cent of the workers' income, it envisages.

For trade unions, the second recommendation is an article of faith. They are correct to point out that existing pensions provision will fail to prevent poverty among a significant portion of the population. But perhaps another motive is present. They are also conscious how the very generous provisions for public sector work pensions contrasts with the situation in the private sector.

Securing a mandatory pension system for the rest of us would reduce this embarrassing gap but it would come at a high price. As well as imposing a de facto tax on workers and an extra cost on industry - at a time when inflation is already killing jobs - the scheme would cost an additional €3 billion in taxpayers' money.

William Beausang stood against the proposal. Or did he? As he listened to the courtiers of consensus, did William's Huguenot blood rise up inside him? Or was he just following orders? The romantic historian in me wants to believe the former, but the rational economist (and former finance official) in me suspects the latter.

The clearest proof of what really happened is contained in last October's National Pensions Review, which preceded the latest report. It records how "with the exception of the representative of the Minister for Finance" the board recommended extending the basic pension and setting a further target for pre-retirement income to be attained by further mandatory provision. So in saying what he did, William was simply continuing the line followed by his department's in previous contributions to the board. Either the department's distancing itself from him is shameful, or it has decided that its nominees to such boards are free to ignore entirely the views of the Department that nominated them.

As for plans for a mandatory pensions scheme, this should be quietly abandoned in favour of a three-pronged strategy.

The first of these - protecting citizens from absolute poverty - is the only remaining form of absolutism that is acceptable. To that end, the 2016 target for contributory pensions should be increased to 50 per cent of GAIE, or higher if needs be.

How do we pay for this largesse? Remember benchmarking? It awarded public sector workers pay increases of €1 billion a year in spite of average pay levels that were already higher in the public sector.

More importantly, it was in spite of far-better pension provision in the public sector, a boon for which the private sector pays. The terms of the second benchmarking exercise should be rewritten to reverse this injustice.

By cutting back overstaffed parts of the public services and reforming structures, the Government could fund more than enough to ensure basic pensions provision is adequate. Raising PRSI for public service workers would also help with funding, and restore remunerative equity between public and private sector worker. And, as noted by the Pensions Board, whereas a mandatory scheme would be administratively complex, extending the basic pension would be straightforward.

The second prong relates to the critical life skill of personal financial management. From the present situation of not even being taught at school, it should be a core part of the curriculum.

As for the third prong, I would like to believe that the Government has learned the lessons of 17th century French history. In the end, centralised planning and bureaucracy always fail. Flexibility, meritocracy and self-reliance always win. Here is a wonderful opportunity to transform the SSIA concept from a cynical election wheeze into a new culture whereby citizens are given tax incentives to build upon their basic pension. The last budget started this trend but did not go far enough.

The Government must recognise and reward our newfound attitudes to self-reliance and personal responsibility.

We are all Huguenots now.