Plan for pension reform must be acted on

Successive governments’ failure to introduce a fair system for private sector employees is an indictment of our political and administrative system

Minister for Employment Affairs Regina Doherty, Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe announcing pension reform measures in Dublin this week. Photograph:  Dara Mac Dónaill

Minister for Employment Affairs Regina Doherty, Taoiseach Leo Varadkar and Minister for Finance Paschal Donohoe announcing pension reform measures in Dublin this week. Photograph: Dara Mac Dónaill

 

The announcement that the Government will consider forcing employers to abolish mandatory retirement ages for their workers is welcome, but it is not enough. Instead of simply looking at the issue a decision on the matter is urgently required.

It is now four years since the State increased the age at which people are entitled to a pension from 65 to 66 but nothing has been done to make it mandatory for employers to allow people to work for an extra year. While some employers have responded by giving their employees that option many have not and the result is that people aged 65 have been forced to rely on jobseekers’ allowance for a year before their pensions kick in.

This is an intolerable situation and part of a pattern whereby successive governments have failed to confront the necessity of reforming the entire pension system.

Earlier this week Taoiseach Leo Varadkar presided over a press conference at which a roadmap for pension reform was announced, with one of the key decisions being the introduction of auto-enrolment for workers by 2022. Changes in the way eligibility for the State contributory pension is calculated in order to bring a fairer correlation between contributions and entitlements, as well as a commitment to link future pension increases to the rate of inflation or pay increases, also feature in the roadmap.

This sounds like progress until it is recalled that reform of the system, including auto enrolment, was announced as a priority 13 years ago by the late Seamus Brennan when he was minister for social protection. The failure of successive governments to introduce a comprehensive and fair system for private sector employees is an indictment of our political and administrative system.

Would it be too cynical to conclude that senior politicians and civil servants are so well catered for in terms of pension entitlements that they have not accorded the priority to pension reform that it deserves? Public servants have long benefited from more generous pensions than the majority of private sector workers. The gap has got wider in recent years with the winding up of defined benefit pensions across the private sector. It means most retiring workers no longer have a pension related to their final salary.

There have been some changes in the public sector pension system, most notably a shift for new entrants from a pension based on final salary to one based on lifetime average earnings with greater contributions also being required.

A potentially serious long-term problem is that there is no fund to pay public service pensions, which come out of current expenditure. A future crisis in the public finances could pose a real risk to the system.The Government has made a start on serious pension reform but will have to do far better on delivery than its predecessors.

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