Missed Opportunity to Deal with the Pensions Time Bomb
Budget 2020 has failed to address the growing issue that is the pension time bomb facing Ireland. In February 2018, the Roadmap for Pensions Reform was published with the promise of creating “a new and necessary culture of personal retirement saving in Ireland”.
The change heralded by the Roadmap has not occurred.
Such improvements are necessary to address the projected €400 million deficit in the State contributory model over the next 50 years. Budget 2020 was a missed opportunity to address this growing issue.
The Roadmap plots out the change to be undertaken between 2018 and 2023. One of the central pillars is the introduction of automatic pension enrolment by 2022. A shift towards personal pensions would help to ease the reliance on exchequer funding.
To date, what this model will look like and how it will operate has not been agreed. With Budget 2020 likely to be the final budget of this government, will pension reform even feature on the next government’s agenda or get the attention it deserves?
At a basic level, a national awareness campaign to highlight the benefit and necessity for employees of having a personal pension should be undertaken. Innovative solutions are required, for example a pension scheme modelled on the SSIA should be considered. How the SSIA worked and was marketed led to its success and take-up.
Of the 36 actions to be completed under the Roadmap, it is understood that only eight are now complete. The State pension has the potential to replace health as a significant drain on exchequer funds. In the next 40 years, the ratio of working-age people to pensioners is projected to fall from 4.5 to one, from 2.3 to one. Effectively, we will have half the workforce to fund a growing State pension bill and increasing health care requirements.
With only 35% of private-sector workers having personal pensions, the absence of private financial security will leave the State shouldering the responsibility. At Mazars, it is our experience that those with private pensions are open to making contributions. However, their decisions on contribution amounts are influenced by tax policy.
Private pensions are typically associated with the wealthy, a perception that will fundamentally lead to negative consequences for all in society. This perception has been heightened by the steps taken by successive governments to curtail relief and increase pension taxation. If a “necessary culture of personal retirement saving in Ireland” is to be created and become effective, the government needs to work to strike out this stigma.
Addressing such improvements is a vital component in looking to the future of the country. Waiting for reform in Budget 2021 is not acceptable. As a General Election looms, parties need to engage in a comprehensive plan to make visible pension changes.
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Budget 2020 Report
Key focuses of the Budget include Brexit and climate change, against a backdrop of continued growth and economic development and the stated aim of improving our national finances in circumstances of continued demands on public spending. The Budget measures are stated by the Minister for Finance as strengthening our foundations and deepening our resilience.