A JOB for life is history. People now change not only their jobs but also their occupation several times during their working lives.

We are frequently told that the population is ageing and that the State will not be able to continue to pay the old age pension at its current rate to future generations of elderly people. We must thus provide pensions for ourselves. These issues give rise to the need for reform of pension planning and pensions legislation.

Broken service

Pensions' legislation is badly in need of reform. The most blatant inequity is that people who move from one job to another are discriminated against. They are deemed to have broken service. For maximum pension you need to have 10 years service with the same firm and for maximum tax free cash you need 20 years service.

These are the rules set down by the Revenue Commissioners and not by the insurance companies which run most of the pension schemes. This aspect of the pensions regulations has not been reviewed since 1972 and requires urgent amendment.

Pensions and PRSI

Pension schemes established by companies for their employees are superannuation schemes. Contributions paid into these schemes are allowable against PRSI. Personal pension plans are set up by an individual for him or herself. Contributions paid into these plans are not allowable against PRSI. Where both employer and employee PRSI has been paid on earnings the total comes to 19.75 per cent. This anomaly should be rectified as it is unfair.

Portability of pensions

We hear a lot about making pensions portable from one job to another, but, current pensions legislation makes it difficult to realise mobile inter company pension schemes. The only truly portable pension is a personal pension but even here there are disadvantages. The maximum tax efficient premium that can be paid into a personal pension in any year is 15 per cent of net relevant earnings. Tax relief is not allowed towards funding back years.

This deficiency discriminates against private sector employees who, in their early working life, were unable to afford a pension. Public servants, however, are facilitated in the purchase of back years in a public service pensions scheme and are granted tax relief on the premiums. Furthermore, there are no concessions made for those older people who were previously unable to buy a pension and now, while able to afford the premiums, are restricted to a tax ceiling of 15 per cent of earnings devoted to purchasing a pension. In Britain tax relief for funding pensions purchase are much more generous.

Another serious drawback with a personal pension is that the contributions are not allowable against PRSI. As already mentioned above, this can be as much as 19.75 per cent of the premiums paid. Therefore as a pensions adviser I find myself recommending a company scheme where possible despite the lack of portability.

What should be done

Reforming the pensions legislation for company pension schemes is a complex matter. The rights of existing pensioners and existing members of defined benefit pension schemes have to be taken into consideration.

Personal pensions legislation is more open to reform. Any legislative improvement could be extended to personal pensions contracts. Such a move would be of immediate assistance to those who are about to commence their careers. Reform of company schemes could be addressed later.

Suggested reforms

In broad terms these are the reforms of the rules for personal pensions which should he considered:

. The limit on the percentage of salary which is eligible for tax relief on pension contributions should be raised to 25 per cent for those over 40 years old and to 40 per cent for those over 50 years old;

. Personal pension contributions should be allowable against PRSI;

. A date should be set in the future when it would be compulsory for everyone at work, over the age of 18 years, to contribute to a private pension plan as well as paying for the State pension. Each member would then have his or her own fund of money which each could identify and monitor. Compulsory funding of private pensions has already been introduced in Australia and Singapore;

. Retirement could be allowed at any age between 50 and 70 years;

. The entitlement to the payment of 25 per cent of the pension fund as a tax free lump sum should be retained. The balance of the fund would be used to provide the member with an income for life;

. Members should be given a choice about how income is provided. Pension fund members should not be forced to forgo all future rights to the capital sum (the pension fund) in return for a guaranteed income for life (an annuity). A choice of income from a deposit in government gilts or a State guaranteed bank could provide alternatives to annuity payment. If this income proves inadequate at a later date then the person can choose to spend some or all of the capital in return for a higher income from an annuity. Those who have sufficient income from an interest hearing deposit account could leave the capital to their heirs.

It would he relatively easy to introduce this system of choice in the provision of an income for life from personal pensions. While company pension schemes are more complex they are not immune to improvement.

Possible benefits

Many of these suggestions may prove innovative or controversial, depending on your point of view. The creation of a class of pensioners who retain the right to pass on the capital sum which funds their pensions by way of an inheritance to their children could have beneficial societal effects.

A beneficial effect of creating a class of pensioners who retain the right to pass the capital of their pension fund would be the transfer of wealth from insurance companies to private individuals.

Furthermore, if every employee had to fund a personal pension a huge reservoir of investment funds would become available. However, the primary purpose of either personal or company pensions schemes should be to make adequate provision for members to enjoy a prosperous and independent old age.