Leo Varadkar says State pension scheme is ‘unsustainable’

Minister for Social Protection Leo Varadkar has said the current State pension scheme is "unsustainable" . He has said that the State pension will still increase with inflation in the coming years, and that there are no plans to raise the pension age beyond 68.

However he said that reforms are needed to reduce reliance on the state pension as the sole source of income in retirement for many people.

Mr Varadkar was launching a consultation programme on a plan to reform the pension system, being overseen by the Pensions Authority.

For the future, Mr Varadkar, said he favours a pension system where employees would automatically be signed up to a workplace pension scheme, unless they automatically opted out. This would lessen their reliance on the state pension in retirement.

The Minister said he would support the “development and introduction of a new, universal, workplace retirement saving system for those workers without supplementary pensions as an essential objective.

Mr Varadkar pointed out a system in Australia in which amounts for personal pension funds are deducted from pay rises.

“What they did in Australia is they agreed to forgo part of the pay increase every other year in return for some of their money being put into their personal pension fund.”

Pay rises are now expected in Ireland for workers following the recession, especially as the economy recovers, according to pension consultancy Mercer.

“We are getting into a time in the economy again where people are getting pay rises and maybe instead of getting three per cent a year, you got two per cent and one per cent into your pension instead,” he said. “Similarly with USC being phased out, if some of that payment went into your pension, it would be beneficial.”

Ageing population

Mr Varadkar said more than half of Irish workers relied solely on the State pension and that had to be change due to our ageing population that is living longer.

“The key lesson from other countries is that you try to build a social consensus and social contract around it,” he said.

Chairperson of the Pensions Authority David Begg said he also approves of an opt-in pension system for employees, to reduce the reliance on the state pension.

“I would like to see something put in place where there is a definite requirement for people to put into the scheme, simply because if you don’t do that it will be very hard to get in place a system that will work for the future.

“My generation, the baby boomers, have reasonable level of coverage but younger people are going to find it extremely difficult. From a public policy point of view it is time to do something but ultimately it’s a matter for Government,” he said.

Improved economy

Mr Varadkar said implementing the new scheme could take up to 10 years but could move quicker due to the improved economy.

The Pensions Board sets out a package of proposals to reform and simplify supplementary private pension provision in Ireland.The proposals set out the Authority’s views of what is needed to reform the provision of supplementary private pensions in Ireland in order to improve outcomes for pension savers and to increase public confidence and understanding. These include higher standards for trustees of occupational schemes, an authorisation process for new occupational schemes, closer supervision of pension scheme management, better information for members and rationalisation of the new of pension savings vehicles.

The Irish Association of Pension Funds (IAPF) welcomed the launch of a consultation document setting out reform and simplification of the pensions system.

"We have been calling for simplification for some time as the current system has had layers of rules and regulations added over the years that have created anomalies and confusion – all of which make it difficult for savers to prepare for retirement. We look forward to examining the proposals in detail and engaging with the process to ensure the delivery of our own objective which is for people in Ireland to have pensions that are secure, fair and simple,"said Jerry Moriarty, chief executive of the IAPF.