The Minster for Finance published legislation last week to spend the €6.8 billion in the National Pensions Reserve Fund. This fund was created by Charlie McCreevy to pay public service pensions in the future. However, to avert the collapse of Irish banks, this fund was raided; €16bn was taken to bailout Allied Irish Bank and €4.5bn to recapitalise Bank of Ireland. Funds were also used to support Small & Medium Enterprises and the pension liabilities of a number of universities and public bodies have been incorporated into the fund.
With the withdrawal of all the money in the fund, the Minister seems to be denying that there is a need for this fund at all, “Rather than having that kind of money in a piggy bank and saying draw on that if there’s a problem with pensions, the best guarantee of pension security is to have a growing economy and people working and that’s the strategy.”
I am absolutely shocked that a Minister for Finance could make such comments. If there is a problem with pensions?? Hasn’t he read the National Pensions Framework? Seeing as nothing has been implemented, I presume the answer to that is no. What about any of the numerous papers that have been published on pensions in Ireland over the decades? Let’s look at some of the facts on pensions in Ireland and draw our own conclusion on if there will be a problem with pensions.
If there is a problem with pensions
Only 45% of people in Ireland have private pensions. That means the majority of people in Ireland will rely on the Old Age Pension of €230 a week in retirement.
The average Irish private pension is just €6,000 a year.
To have an annual pension of €11,000 per annum, someone on the average industrial wage will have to pay 14% of salary into a pension plan over their entire working life.
The government removed PRSI & Levy relief for net pay pension contributions, meaning less money is being saved and more money is taxed.
The government introduced a tax on pension funds of 0.6% of the fund value each year. They promised it would only be taken for 4 years but rolled back on that promise. In 2014, they have increased this tax to 0.75% of the fund value. This can knock tens of thousands of euro off pension fund values over the lifetime of the pension. I wrote about this before.
The best guarantee of pension security is to have a growing economy and people working and that’s the strategy
There is no funding for public service pensions. It is taken directly out of the Exchequer each year. With the increase in the number of public servants during the Celtic Tiger also comes preserved pension benefits, with benchmarking increases. People are living longer, meaning these benefits will be paid for a longer period. The NPRF was set up to take some of this pressure off the Exchequer.
At present, there are 6 people working for every pensioner. By 2055, there will be just 2.3 people working for every pensioner. How will these 2.3 people be able to fund the growing number of people needing?
The Troika forced us to increase the retirement age for the old age pension to 67 in 2021 and to age 68 in 2028 to ensure that we can keep on paying it.
With overwhelming evidence that we need money in the “piggy bank” to pay for pensions in the future, why has this current government done nothing but put up barriers to prevent people from saving? Maintaining a pay as you go strategy has been proven to be the wrong strategy. This short sighted view is going to be felt for generations to come.