A radical new initiative proposing a IR£30bn ($48.6bn) state provision fund and IR£100 per week target for pension payments has been suggested in a report by the Irish pensions board.
The report, 'Securing Retirement Income', a culmination of the Nation-al Pensions Policy Initiative launched in 1996, recommends that social welfare pensions in the country should be brought up to equal 34% of average industrial earnings.
This figure would constitute a leap from the present state pension for a single person of IR£83 or 28.5% of average earnings, to the IR£100 per week the board considers: The minimum in-come for the avoidance of poverty in retirement."
Once pensions have been brought up to this rate the report then recommends they be indexed in line with living costs to guarantee their levels.
Expected costs for such changes have been calculated at around £440m, or less than 0.7% of GNP, and the report stresses the need for action sooner rather than later, to take ad-vantage of the country's current favourable demography. Ireland has a relatively low elderly dependency ratio compared to other OECD countries.
The report strongly urges the government to launch a state funding mechanism with annual contributions of between IR£250-500m per year, in order to provide the IR£30bn deemed to be necessary by 2031 to meet the demand for pension provision.
After 2031 this fund, it is said, would be depleted to satisfy growing pension payments, before finally being extinguished in 2046.
With only 46% of the workforce in Ireland owning supplementary pension provision, the report also calls for strong obligations to be made on employers to provide access to second pillar pension schemes.
A new supplementary pension vehicle, the personal retirement savings account (PRSA) is to be set up in order to facilitate this second pillar provision.
This, it is proposed should be owned by the individual and be independent of employment status. The PRSA would be capable of accepting both employer and employee contributions, including additional voluntary contribution pension top-ups and contributions by the self employed, as well as transfer values.
Contributions to a PRSA would be regulated by limits on tax relief, with the board suggesting this be fixed at 0.5% for each year of age, subject to a minimum of 15% and a maximum of 30%. All contributions of up to IR£1,200 per annum will be eligible for tax relief though.
Tax rules should also be simplified to ease this transition, the report says. This could come about through a more career-based approach to de-fined benefit schemes, where tax benefit limits would be incremental to an employee's age.
If insufficient progress is made in this development of supplementary pension schemes, a more mandatory stance could be adopted. This would ensure employees supplementary pension access, or further still, even legally oblige employer contributions to this second pillar.
For Des Crowther of the Irish Association of Pension Funds the report represents a much needed move to focus on career-based, rather than job-based pensions.
However, he stressed the fact that it is only "the end of the beginning for future pensions provision in Ireland."
" The report has been generally welcomed by Dermot Ahern the Minister for Social, Community and Family Affairs, but we have to ensure that expert groups, which have been suggested to look more closely at these issues, are indeed set up. We must also keep lobbying to see these changes approved.
" On the whole though we are very pleased with the radical nature of the report and the present reaction to it." Hugh Wheelan"