The Pensions Board's recent report was widely misunderstood, but the bones of a good system are there for all to see, writes Rosheen Callender.
The full title of the Pensions Board's most recent report is Special Savings for Retirement: Report on Mandatory Pension System by the Pensions Board for Séamus Brennan, Minister for Social and Family Affairs. Let's just call it Mandy for short!
Mandy was released by the Government last week; and was immediately the victim of misinterpretation, misrepresentation - and simple misunderstanding. Admittedly, Mandy is quite a complex creature, with peculiar parentage, a murky past - and genuinely difficult to understand.
Unfortunately the present Government, and its predecessor, consistently ignored suggestions by trade unions on how to bridge the pensions gap. We've lobbied for increases in the State pension - but it still hasn't reached the target of 34 per cent of average industrial earnings as recommended by the 1998 and 2005 Pensions Board reports. We've suggested reforming tax incentives (to make them work equally well for all, not just those on 42 per cent); starting pension contributions much earlier in life (ideally at birth); and giving "tax relief" for pensions and PRSAs "SSIA-style" (by "matching contributions" from the Exchequer, as this is clearly a more effective and transparent incentive).
Indeed, the recent Irish Life survey (mentioned by David Went in last Monday's Irish Times) suggested the level of interest in transferring money into pensions by SSIA holders could be quadrupled (from 9 per cent to 36 per cent) by this latter reform.
I don't disagree with David Went when he says it would be better to make the present system more effective than devise a mandatory system and ensure it does not adversely affect existing good schemes. But we've been waiting nearly 30 years for governments to do this. We can't wait forever.
Hence unions insisting that we look at mandatory pensions again. This is not ideological dogma: just a strong view that the time for patience and complacency is over. Action is needed.
It was Mr Brennan, last February, who asked the Pensions Board to take a more detailed look at what sort of mandatory system might work, if the Government was to go down that road. So Mandy was delivered, very quickly, but with considerable care and expertise. It should not be lightly dismissed.
The group pondered various permutations: increase State pensions dramatically; introduce a "tough" or "soft" mandatory regime; devise something entirely new; collect, invest and manage the money in various ways. It looked at systems in other countries. Eventually, it narrowed the possibilities to five broad approaches and costed each on five sets of assumptions such as GNP growth and phase-in times.
Mandy is tailored to the Irish experience. For good reasons we didn't copy systems elsewhere. We invented our own to suit ourselves. It's open to further moulding and reshaping but the bones of a good system are there to see, for those seriously committed to the idea of good pensions for all.
One of Mandy's key features, widely misreported, is the 15 per cent contribution rate which we took as our starting point. This is the minimum needed to produce worthwhile results. It is not 15 per cent of total earnings, but 15 per cent of "eligible income" ie, that tranche of income to be "pensioned" by the new system. Between 125 per cent and 500 per cent of the State pension was suggested. This targets the group most likely to need supplementary pensions.
The 15 per cent figure also sends an important message to people currently contributing less (ie, between employer and employee) on the need for better provision.
Mandy does not say the 15 per cent contribution should be shared equally. It says it should include an Exchequer contribution of 5 per cent, in the form of an SSIA-style contribution rather than tax and PRSI relief. In my view, employers and employees should pay 5 per cent each. But the exact split would be a decision for government.
As regards phasing-in, I would argue for doing it over five years. Remember: we've already waited nearly 30. If we had started back in 1977, we would now have the world's first truly comprehensive pension system at a much lower cost than we're now looking at.
Finally, on that crucial issue of cost: obviously, if we include the "other half" of the workforce - mostly women - who don't and won't have decent pensions, in a system that is going to be truly inclusive, we are talking about dramatically increasing investment in pensions. There are many possible ways of doing this. Whatever the system used, the costs are similar, if the pensions are to be adequate.
The question is whether, as a society, we are sufficiently committed and determined to make that investment, for both social and economic reasons; and whether we can convince our political leaders of the necessity for this.
Rosheen Callender is vice-president of the Irish Congress of Trade Unions. She works as an economist with Siptu and has been a member of the Pensions Board since 1996