Jonathan Williams wonders whether politicians have the mettle to implement policies that will truly benefit overburdened pension systems.
Listening to the UK's former prime minister Tony Blair discuss the hardship politicians face in balancing short-term political gain with sensible long-term policy, most would not shed a tear for members of the embattled, supposedly suffering governments.
Blair, one of the UK's most successful post-war politicians, was discussing the fallout of the euro-zone crisis at a conference organised by National Association of Pension Funds, noting that the past five years had exposed long-hidden structural flaws in EU member states.
He said that much-needed reforms often met with resistance from vested interests in the public and private sectors, causing conflict between economically sound decisions and ones allowing politicians to survive the next election.
The former prime minster continued: "So you've actually got a situation where, if you look across Europe at the moment, countries like Spain and Italy, Greece and Portugal – Ireland even – have been taking some structural reforms. But the pain that is causing, particularly when allied to the politics of austerity, is causing the political class real difficulty in facing up to a further round of reforms, although that further round of reforms is almost certainly necessary."
Reforms that fall into the "almost certainly necessary" category are changes to boost the coverage of European pension systems, such as ones looming in Ireland.
Currently awaiting the outcome of the OECD's review, the country's coalition made it part of its 2011 programme for government to "progressively achieve universal coverage".
There is existing political consensus around auto-enrolment, and its introduction was the central finding of an exhaustive government report, commissioned by the then-Fianna Fáil government in March 2010. The report suggested the policy's launch in 2014 should be contingent on the country's economy being stable – given the banking crisis and IMF bailout, a distant and ever-shifting goal.
However, Joan Burton, minister for social protection in the current Labour/Fine Gael coalition, has repeatedly spoken in favour of the policy, and it would appear to address the pledge to achieve universal coverage progressively – potentially through staging dates, as in the UK, or continual re-enrolment for those who opt out after a set point.
However, according to the OECD's Pablo Antolin, principal economist in the private pensions unit, auto-enrolment is only the second best option. Discussing how the OECD advises governments on matters such as pension policy, he says it is important to ascertain what the policy's key objective is. "Obviously, if the policy objective is to increase participation rates as much as possible, compulsion is the best way to go," he says.
He notes that compulsion removes the trappings of incentives to stop a population from opting out, but acknowledges the approach is in itself not without its own problems. "We understand that compulsion can be perceived as a tax by many people and by policymakers – and also, compulsion has the problem that you are forcing one rate on everybody, which might be inefficient."
One-rate-fits-all concerns, however, do not exist in compulsory environments only. The UK's auto-enrolment threshold has been argued by some to be too low, unable to provide a sufficient replacement ratio for savers. Lawrence Churchill, chairman of the UK's National Employment Savings Trust, earlier this week said that, "as a general rule of thumb", a rate almost double the current minimum was appropriate. "Now it's [an] inconvenient truth because I've got lots of things I can do with 15% of my income as well, but actually I don't think it's going to go away," he told a joint conference hosted by the OECD and Pensions Institute in London.
However, Antolin's point about compulsion's perception as a stealth tax is key, and goes straight to the heart of Blair's point: Will politicians be able to navigate the trappings of short-term politics to reform Ireland's pension system, instituting a long-term policy that benefits both individuals and the underfunded, overburdened state pension system?
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