Pension crisis is still a financial disaster waiting to happen

Benjamin Franklin famously said the only two things about which we can be certain are death and taxes. If he were alive today he might be tempted to add pensions crisis as a third certainty of human existence.

I wrote my first “pensions are in crisis” article (for this newspaper) more than a decade ago. That is not a claim to successful futurology or deep insight. It was merely an observation of an existing state of affairs. It was also something that pension experts had been warning about for a long time. Attempts have been made to make things better but these have mostly been piecemeal. Of course, with regard to the National Pension Reserve Fund, it was a case of one step forward and then fall off a cliff. Many pensions are still in crisis, both public and private.

The list of culprits is a familiar one: we are living longer. In particular, we are living longer than expected by the actuaries who set up the pension schemes in the first place – yet another example of the futility of forecasts. Investment returns have also, in many instances, been lower than forecast. The ending of company defined benefit schemes has also created more problems than it solved.

Dilemma

All of this is standard stuff. The response of pension experts is always a rational one: above all else, we should be saving more for our old age. The action taken by most of us is often to yawn and pay attention to something more interesting. Like slowly boiled frogs, we do nothing as the problem builds. Curiously, unlike boiled frogs, we know what is happening and why. We also know what to do to escape the pensions dilemma but mostly choose not to.

This is where it gets interesting. The pensions industry yells louder at everyone to save more. During good times and bad times, the experts are mostly ignored. It’s not just about the recent recession leaving no money left over for saving. When things were booming we saved more but still nowhere near enough.

All of these remarks apply to many economies, not just Ireland’s. We are uninterested in our pension arrangements. Attempts to persuade people to do something often fail. Perhaps it is time to face up to this and acknowledge the consequences for public policy: a lot of people are going to be very disappointed by their pension entitlements. State pensions will remain a significant part of old-age income. This, in turn, will generate another fiscal crisis, sooner or later.

The political power of older people is growing in line with their numbers. Few politicians are willing to antagonise a most important bloc of voters. It seems to be easier to cut public sector pay than to take on pensioners. Nobody dares tackle existing benefits, some of which are as daft as they are unaffordable.

Journeys on the Aircoach from Killiney to Dublin Airport are illustrative. The conversation is often about overseas villas and the latest cruise. These well-heeled pensioners are travelling to their holiday destination in leather-seated, free wifi luxury at the expense of the taxpayer. It really is quite an experience.

Indefensible

Free travel for all is just one indefensible, unaffordable benefit that, I forecast, will never be tackled. I am not going to mention healthcare spending for fear of what will happen to me the next time I am on that bus.

It is tempting to say I must be wrong: a future financial crisis will force politicians to do the right thing and sort out pensions and unaffordable entitlement spending. But we have just lived through the worst financial crisis of all time which left many “unsustainable” benefits untouched and did little to sort pension arithmetic that doesn’t add up. These are battles that seem to be too hard, politically, to fight.

Future governments will be faced with a paradox: the ever-increasing power of pensioners will lead to ever-decreasing willingness to tackle unaffordable spending commitments. But those older people will be growing more and more disgruntled with their pensions.