Taking a long-term view of Ireland's pensions

The key challenge facing the Irish pensions system lies in the very basic and fundamental need for pension savings. At times of economic distress it is understandable that individual savers might cut back on, pause or stop saving. Pensions, after all, are about saving for the long-term and people will, understandably, reassess that when they have more immediate priorities. With take home pay being reduced by increased taxes and pay cuts, people need to adjust to their new circumstances. Who after all would continue to save for retirement in 30 years time if their home could be repossessed in a few months?

However, it is very concerning when governments start thinking that way. Ireland was lauded for being one of the first countries to establish a National Pensions Reserve Fund (NPRF) in 2001. The proceeds of the privatisation of the State owned telecommunications company formed the initial investment and the government committed to adding 1% of gross national product each year. The proceeds of the funds could only be used to help fund the projected increase in the cost of public sector and State pensions from 2025 onwards.

The fund reached over €20bn ($27.7bn) in assets and was going some way towards addressing the continuing increase in the cost of public sector and state pensions. By the end of 2009, public sector pension liabilities alone were estimated to be €116bn. However, when the banking crisis hit the vast bulk of the assets of the NPRF were used to recapitalise the banks. Perhaps this should have been foreseen when, in 2008, the government decided to effectively nationalise the pension schemes of a number of non-commercial semi-state organisations including the main universities. All of these had funded schemes and most had deficits. The assets were transferred to the NPRF and the liabilities absorbed within the vast public sector pensions liabilities.

Public sector workers have also been required to pay a public sector pensions levy which is not any way linked to their benefits but is in effect a pay cut. There has been a tightening of the limits in recent years in terms of funds that can be accumulated and contributions paid. Much of this has been to address the use of pension planning as a means of tax and inheritance planning.

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• Topics
• Ireland
• Ireland
• National Pensions Reserve Fund (NPRF)
• EU
• Country Analysis