Election Questions on Pension Reform

One of our key concerns about our future debt lies in the business of pension costs. This cost is currently not reflected in our overall debt position and many ratings agencies are now considering pension liabilities when computing the overall risks inherent in the economy. We need therefore to understand the parties’ position on this issue.

Our first question is –“Will you undertake a reform of the pension entitlements including the age of retirement?” Currently most pension liabilities for the public sector are calculated on the basis of the final salary at the time of retirement. This is what is known as a defined benefit scheme. These schemes were very popular thirty to forty years ago but more recently have fallen out of favour. This was because the contributions made to the scheme often did not generate sufficient returns to the scheme to cover the future liabilities. The fund ended up with a shortfall which had to be funded by the company. Now the preferred choice is a defined contribution scheme whereby the employee retires with the total of his accumulated pension funds which are used to buy an annuity. There is thus no shortfall in the fund but the drawback is that if the investments have not done well then the annuity or monthly pension will not be very large. We need to know if there will be a change in the way pensions will be calculated.

If the age of retirement is extended; it will mean that persons will be working for longer periods. This will provide additional funding for pensions but has a drawback. If persons are working longer then there will be fewer jobs available for younger persons. Thus any plan to increase the age at which one retires must go hand in hand with job creation otherwise solving one problem will simply create another.

It is important to remember that pension reform does not only affect the public sector but potentially affects every one of us. Changes to the pension act will affect ones entitlements under the National Insurance scheme. Those who are looking forward to receiving a pension from the fund may not in fact get one if changes are made to the fund. The possibility exists that any changes to the pensions act may reduce pensions in the short term but increase the future pensions of those to come.

In this series of articles I have looked at several questions that we need to ask of those wishing to govern us. It must be pointed out that we cannot ask theses questions in isolation of each other. Each area impacts on or is affected by the others and thus all must be considered together. To ignore even one means to leave our problems unresolved we need to find a way to do all of them.