Fix pensions now or risk future misery for a million workers who aren’t saving

That might seem reassuring, but once you exclude the public sector, there are around a million private sector workers with no supplementary pension savings at all.

The seriousness of the situation cannot be understated. Immediate action is required to prevent pensioner poverty for a large section of our society. The well-documented problems with the Irish pension system are threefold.

Firstly, the long-term sustainability of the current state pension is in severe doubt, as highlighted by the Pension Commission’s report last year.

Secondly, CSO figures show the number of private sector workers saving into supplementary pension arrangements remains stubbornly low.

Thirdly, there are concerns that existing pension savers are not saving enough to provide an adequate retirement income, a problem which could be exacerbated by increasing living costs.

Political obstacles have allowed this crisis to deepen. Policies that adversely impact voters in the short term but bring longer-term benefits to society do not win votes.

Consensus is urgently needed to deliver an equitable long-term pensions strategy that protects future generations.

The Pensions Commission has warned that if the state pension age does not increase to 68 by 2039, the Social Insurance Fund deficit will grow to €13bn by 2050.

Despite this, the conclusion of the Oireachtas Joint Committee on Social Protection, Community and Rural Development last week was that it should remain at 66, with thresholds for eligibility reduced.

As demographic pressures worsen, such a move poses a chronic challenge to the public finances and the sustainability of the state pension in the longer term.

To address the pensions coverage issue, automatic enrolment has become a key pension policy objective for the current Government, a decision which has been under consideration since 2006, and subject to much recent debate and public consultation.

The aim is to increase the number of workers saving into supplementary pension arrangements, many of whom have simply never gotten around to setting up a pension.

With auto-enrolment, the plan is that workers over a certain age and salary threshold will be automatically enrolled into a pension, contributing a minimum level that will gradually increase over time.

Employers will have to match contributions up to a certain level and there will be a top-up payment from the State.

A system like this will help overcome the inertia factor inherent in our current voluntary pensions system; workers won’t have to do anything to join but will have the ability to opt out if they choose.

International experience shows that auto-enrolment will have a significant impact on pensions saving.

In the UK, pensions coverage has increased from 50pc to 90pc in the 10 years since auto-enrolment was put in place. This evidence makes it clear that auto-enrolment should be introduced in Ireland without delay.

But recent comments by Minister Heather Humphreys suggest we may not see auto-enrolment until the end of 2023, with the Government yet to sign off on key design elements.

Given these delays, and uncertainty around the electoral cycle and political support, many are sceptical that we will see auto-enrolment at all. If the Government is serious about implementing auto-enrolment by 2023 it needs to simplify its approach.

The current proposal under consideration is ambitious and worthy, but it ultimately requires the creation of a parallel auto-enrolment pension system that needs to have both political agreement and the confidence of pension savers.

This is clearly taking a long time to work through and perhaps, because of its complexity, too much is being attempted too early.

As an initial step, the Government could still address many of the issues we face by integrating a form of auto-enrolment into the existing trust-based pension system. It is timely that this is undergoing widespread and important regulatory reforms.

These target improved member outcomes and benefit security through enhanced governance, risk management and communications requirements and will lead to a much more robust system.

Alongside this, the growing popularity of master trusts provides another option for employers looking to outsource pension provision avoiding the compliance burden and associated costs of running their own pension schemes.

Both employers and savers would benefit from being part of a professionally-run arrangement which is required to adhere to the highest standards of governance.

The best and simplest features of auto-enrolment – mandatory employer and employee contributions, the state top-up and the ability to opt out – could all be integrated into this system. The broader features of the Government’s plan could then follow.

Furthermore, where affordability remains an obstacle to saving, introducing flexible options allowing access to savings in specific circumstances – such as to buy a first home – would provide peace of mind to encourage more pension saving.

Pension coverage urgently needs to improve to relieve pressure on our state pension. Simple, effective measures are available and the Government must not delay any further.

John Mercer is CEO of pensions provider Mercer Ireland