ISME CEO speaking ahead of Pensions Awareness Week 2021
Ahead of Pensions Awareness Week which starts today, the Irish SME Association (ISME) is calling on Government to treat private sector workers equally in any pension reforms. Pensions Awareness Week 2021 (20th – 24th September), which seeks to raise awareness about retirement planning, comes at a very important time, as the Government puts the finishing touches to Budget 2022. Among the measures the Government are considering are further restrictions on the ability of private sector workers to save for an adequate pension.
Currently, 40% of private sector workers have no pension other than the contributory (or non-contributory) old age state pension with the current maximum outlay being €248.30 per week, equivalent to €1,076 per month. Although the State pension is quite high in comparative terms against our European neighbours, it fares poorly in terms of “replacement”. The replacement rate is the extent to which the pension replaces the average industrial wage. Due to Ireland’s relatively high average industrial wage, the replacement rate of our pension is very low. The net pension replacement rate for a worker on the average wage in the EU28 is 63.5%, however in Ireland it is just 35.9%. This means that Irish workers relying only on the State pension will find it difficult to afford to live on their state pension in retirement.
Pensions also need to be considered in terms of the financial liabilities incurred by the State. With Covid-19 pandemic spending, and the expansion of our public services, Ireland’s national debt will hit €252 billion next year. This is equivalent to a debt of €50,400 for every man, woman and child in the country. The public service pensions liability is underfunded by €150 billion, which is equivalent to a debt of €30,000 for every citizen. Furthermore, social welfare pensions are also unfunded, with the liability totalling €359 billion, equivalent to a debt of €71,800 for every citizen.
Even with the reforms introduced for new public servants in 2013, public sector workers enjoy risk-free guaranteed-income pensions, which they do not make an economic contribution towards, while private sector workers bear all the risk and tax liabilities on pensions which will return a far lower level of income.
Neil McDonnell, Chief Executive of ISME, said: “We acknowledge that the subject of pensions tends to discourage even the most ardent of savers, but it is an extremely important subject to discuss as a worker’s pension is usually the second largest asset they have after their family home. Any Government proposals for pensions reform will be dead in the water if they exacerbate the gulf of inequality that already exists between public and private sector workers. Private sector workers and the self-employed will play their part in pensions reform, but only if they are treated equitably.”
Neil Mc Donnell added: “Ireland has a big problem with pensions, a problem more than twice as big as the national debt. The solution to this is not to make private sector pensions harder to fund, it is to make our state pensions sustainable. ISME recognises that auto-enrolment is on the way for employers; this is something that ISME has campaigned for over the last two decades. However, we must also recognise that our personal contributions to the social fund, at 4%, is the lowest in the EU. We cannot complain about the coverage of state pensions if we are unwilling to contribute meaningfully to them.”
Issued on behalf of ISME by Heneghan