OPINION: People are walking into a future in which they assume a pension that simply will not be there

MAYBE THE Government should encourage more regular leaked memos on "pensions crises".

It certainly brought the subject to the fore of public consciousness and the news agenda in a way that has proved inordinately difficult in recent years.

And that's the point.

The pensions crisis is nothing new.

Report after report going back over the past decade and more has warned that people are walking blindly into a future in which they assume a level of income in their retirement that simply will not be there.

The current market slump has brought a new focus on the problem.

Dependent as they are on equity performance for the majority of their growth, pension funds were never going to be able to weather the stock market turbulence of the last 20 months without shipping significant losses.

Many of the funds have barely recovered their ground after suffering in the dotcom bust that saw markets slide in 2001 and 2002.

But the middle of a bear market is never the best time to assess the health of the pensions sector. And it has become for employers a somewhat convenient hook upon which to hang their decision to close such schemes.

Employers here and in Britain have been closing defined benefit, or final salary, pension schemes consistently over the past decade - including years that have been some of the best on record for equity market returns.

This is not a reaction to the current market slide but part of a longer-term change in pension provision, spurred in part by a rigorous funding standard and accounting rules which dictate that short-term pension fund adversity must be reflected on balance sheets.

From the outset, defined benefit occupational schemes were a boon for employees. For little or no contribution on their part, they received a guaranteed income in retirement of as much as two-thirds of their working salary.

As one senior executive in the pensions industry noted this week, for most people approaching retirement their pension fund is likely to be the most significant asset they hold.

Traditionally, of course, the safety net was provided by the employer. If there was a shortfall in the fund when it came to paying pensions, they were the ones who made up the difference.

Last week's brouhaha over the threat to defined benefit schemes - as well as worries over annuities - may have been somewhat over-dramatic and did miss the point somewhat, but it did inadvertently put a spotlight on some of the fundamental issues with Irish pensions.

Contributions are, in general, too low and there is a marked absence of Government policy direction. A third issue, of course, is the unsustainability of public pensions, but that is an issue for another day.

On the contributions side, we are all living longer, and corporate bond yields have been falling, at least up to the current crisis.

Older pensioners are more expensive pensioners. With pressure on competitiveness growing all the time, employers are finding it increasingly difficult to justify the rising cost of providing defined benefit pensions to people who may live longer in retirement than they served with the company.

In defined contribution, or money purchase, schemes, the employees are discovering this cost for themselves.

Annuity rates are falling as insurance companies factor in the cost of our longer lives. If you are 30 years old, earning €60,000, and want to retire at 65 on a two-thirds pension, actuaries reckon you need to be investing around 20 per cent of your gross salary in a pension. How many people in any pension scheme are doing that?

The second issue is Government inaction. By and large, the Government approach to the pensions debacle in the past decade has been to commission more reports and then long-finger action on recommendations - apart from those measures that can save the exchequer money.

Everything from restructuring incentives to make them more clearly understandable to introducing mandatory pensions or establishing a system of cheaper, State annuities has been proposed at one point or another.

We don't necessarily need a review of the funding standard, but a reassessment of how it is reflected in company balance sheets.

We certainly don't need more Government reports, just a willingness to show some imagination in devising policy based on some of the proposals already in the public domain.

The Ministers' announcements last week were characterised in some quarters as a "band-aid" solution to a much graver problem. Ignoring that deeper malaise is only going to cost all of us more in the long term.