OECD says pension reforms insufficient

RECENT PENSION reforms will not be enough to offset increased costs in the future, according to a report published yesterday by the OECD.

Despite increases in retirement ages being announced in half of OECD member states, life expectancy is rising even faster – outstripping the increase in pension ages by about two years for men and 1½ years for women.

“This means that in all but five OECD countries the time spent in retirement will continue to grow,” the report says.

A separate survey by KPMG finds that Irish employers are growing increasingly concerned about the costs of funding staff pensions. With tax relief on pensions falling, almost two-thirds of respondents said they would consider renegotiating the terms of their existing pension schemes.

As many as 46 per cent would consider reducing employer contributions. Three-quarters said the rise in payroll costs as a result of falling PRSI relief on such contributions was a concern.

“What is clear from our survey results, and due to the future expected curtailments in tax support for pensions generally, is that whilst pensions still have a role to play in retirement planning people will need to consider alternatives to help fund their retirement also,” said KPMG tax partner Olivia Lynch.

This chimes with the OECD report Pensions at a Glance 2011, which says countries need to do more to fight discrimination against people choosing to work beyond traditional retirement ages.

It notes that public pensions account for 60 per cent of old age incomes today on average. “The other 40 per cent is made up almost equally of income from work and from private pensions and other savings. As public benefits are reduced through reforms, these other two sources will need to fill the gap.”

The report cites Ireland among a small group of countries taking “innovative steps” to encourage people to invest more in private pensions, a step the OECD says is key to improving the situation.

But it also warns that reforms that reduce public pension spending should protect the most vulnerable – low earners and people with interrupted careers – from the full force of benefit cuts.