Irish workers may have to carry on working up to 10 years beyond normal retirement age to make up for pension shortfalls in the private sector. That's the prediction from several industry commentators who maintain that, so far, this is an issue rather than a problem.
Increased life expectancy and low pension contribution rates are undermining traditional assumptions about retirement. Over the past 30 years, life expectancy has increased by five years for women and four years for men.
Mr Eamonn Heffernan, the new president of the Society of Actuaries, has cautioned that the implications for pension provision should be considered in light of the increases in life expectancy.
"More money may need to be set aside by the State, employers and by individuals to fund the cost of paying pensions for longer. Otherwise pension expectations may have to be lowered," he said.
Those who monitor pension provision - the Pensions Board, the Society of Actuaries and the Irish Association of Pension Funds (IAPF) - agree it is an issue that needs to be addressed.
"The trend towards early retirement is a bit worrying and expensive," says Ms Anne Maher, the chief executive of the Pensions Board.
Added to that is the problem of low rates of contribution in personal plans and defined contribution schemes, both by the worker and the employer. "Whilst we've been focusing on increasing private pension coverage, we haven't been monitoring the adequacy of those pensions. Quite a few people in defined contribution schemes will be disappointed if the combined contributions are not that high," Ms Maher said. Ms Rosheen Callendar, National Equality Secretary of SIPTU, said adequacy had to be a fundamental objective when planning pension policy.
"We're working for a system which will, at some stage in the not-too-distant future, provide everyone with enough income and sufficient services to enable them to live out their retirement and old age in dignity and comfort."
Mr Des Crowther, director of the IAPF, points out that existing defined benefit pension schemes are fully funded, and can and will meet their obligations. However, he says, there needs to be a reframing of the whole concept of retirement and that working in some capacity to the age of 70 or 75 is a distinct possibility "Naturally there should be a choice but the idea of retirement at 65 is one which should be open to debate. I can envisage people relying on a mix of retirement income and other income after 65, perhaps from part-time work."
According to Ms Maher, little attention has been given to the fourth pillar of pension provision - employment income.
"It's also realistic for us to consider moving away from a fixed point for retirement to a model of phasing down hours." Ms Maher envisages that these changes will be driven by employment needs in the economy.
The move from defined benefit to defined contribution pension schemes is playing a part in the rethink on pensions. Schemes set up in recent years are virtually all defined contribution and there has been a lot of switching from defined benefit to defined contribution in the past decade (see panel). Of occupational schemes, 75 per cent are defined benefit, compared to 83 per cent five years ago. The majority of pension schemes can be terminated by the employer at any time and most can be amended, depending on the circumstances. Such changes would apply to new members of a scheme.
The growth in popularity of defined contribution schemes has been led by incoming multinationals and shifts the risk of a shortfall from the employer onto the employees.
Contributions paid to defined contribution schemes are generally lower than to defined benefit schemes, at 10 per cent versus 12 to 14 per cent. With regard to guaranteeing pension benefits, Ms Callendar says reform of the Minimum Funding Standard (MFS) is needed.
The MFS is a kind of actuarial health check for a pension fund to establish whether it is able to meet its liabilities at any given time. Pension schemes have to undergo this scrutiny every three years. The Pensions Board recommended various changes to the MFS for the short term and medium term, and these are being provided for in the forthcoming Pensions Bill.
It also made some recommendations for the longer term, including examining the pros and cons of forward-looking certificates. This might provide some reassurance for scheme members.
Concerns have been raised about how much will be achieved by the new flexible pensions vehicle, the Personal Retirement Savings Account (PRSA), which should be available early next year.
Some commentators have suggested that rather than simplifying the pensions puzzle, the PRSA will add another layer of complexity and confusion to pensions.
Industry sources have spoken of the risk that the PRSA will be seen as a substitute for a good pension scheme rather than a complement to one.
According to Mr Crowther of the IAPF, the Republic is 15 to 20 years behind Britain and Europe demographically, and has time to prepare for the impact of longevity on society.
So what is the likelihood that today's 30-year-olds will have to work for another 40 years or more? The answer depends on what action is taken by the parties concerned - Governments, employers and workers - before the issue really does become a problem.
