Tiarnan O'Mahoney says mandatory pensions may be inevitable, writes Siobhán Creaton

There is little doubt that Tiarnan O'Mahoney knows the importance of having a good pension.

The new chairman of the Pensions Board got Anglo Irish Bank to pay him €3.7 million on his departure in 2004 after almost 20 years plus a €250,000 contribution to his personal pension scheme. The 46-year-old says this shows he has always been serious about saving for old age.

While few people could ever aspire to such a handsome pension, O'Mahoney is committed to helping the Government defuse Ireland's pensions timebomb to ensure that people here can retire with dignity and afford a decent standard of living.

He was appointed by Minister for Social and Family Affairs Séamus Brennan earlier this month for a five-year term. It's a non-executive position that he will take on alongside running his own new business, International Securities Trading.

The company specialises in sourcing and providing capital for banks worldwide and has assets worth up to €5 billion.

O'Mahoney has clearly been put in place to bring a sense of urgency to addressing the pensions issue. One of the first tasks O'Mahoney will oversee at the Pension Board will be a study of the viability of various options for mandatory pension saving by workers in the Irish economy.

The Minister made clear at the recent publication of the National Pensions Review that he sees some element of compulsion as inevitable if the Government is to hit its targets on pensions coverage.

O'Mahoney says he is pleasantly surprised that the Government has made pensions a top priority, considering it's unlikely to translate into any extra votes come the next election.

He believes Ireland's current economic wellbeing makes this an ideal time to tackle the impending pensions crisis. Any economy that is expanding at full tilt and has full employment has the resources to fend off such a disaster, in his view.

"It's time to address the issue. This generation should provide for their old age, otherwise the next generation will have to pay," he says. "This is something that we shouldn't pass on."

The Government target is to have 70 per cent of those over the age of 30 making sufficient private pension contributions to ensure they will have a pension equal to half their salary when they retire. At the moment, the figure is 59 per cent and it has stayed stubbornly at that level despite intensive efforts from the Government and the Pensions Board in recent years.

This can only be achieved by boosting pension coverage.

O'Mahoney says there are almost one million people working in the Republic who have made no private pension plan and are reliant solely on the State pension when they retire.

"Typically they are people closer to the minimum wage and they are probably the people who most need a pension. The majority of those people are women," he adds.

O'Mahoney contends that people should think about pensions simply as a long-term savings plan that will give them a better retirement income than the State pension. "If you don't save now, it is going to fall back on the State to look after you when you are 65 and that's not entirely fair or equitable," he suggests.

Furthermore, State pensions are designed to provide subsistence income, no more.

The Pensions Board is working to persuade the Government to raise the level of the State pension to a point where it equates to 34 per cent of gross average industrial earnings. Following recent increases, it stands at 33 per cent.

The board, which oversees the Irish pensions industry, can only advise the Government on how to increase the level of private pension coverage in the State and O'Mahoney says whatever it does can only be good. "Any measures that help the situation have to be positive in terms of providing quality of life for people in their old age," he says.

The recently published National Pensions Review has proposed a series of incentives to encourage people to save for retirement on a voluntary basis and is currently being assessed and costed by the Government.

These include the introduction of an SSIA-style system of matching contributions for contributions to the Government flexible pension product, Personal Retirement Savings Accounts (PRSAs), and more equitable tax relief for pension contributions.

O'Mahoney says the success of SSIAs has rekindled a savings culture in Ireland and this is something that should be built on as these accounts mature. "People will have seen that as a five-year deal, but it has been shown that many could afford to put up to €254 a month into an SSIA. They have the income to save that amount."

Many of these SSIA account holders were in their 30s, people who despite being highly indebted through large mortgage and family costs, could find some money to save. They are the group that the Government now wants to primarily encourage to continue this habit and to put their money into a pension which could prove unpopular.

"The Government is asking someone in their 30s to save money for when they are over 65. They probably won't thank them now for such an imposition, but when they get to 65, they will realise this was a wise move," O'Mahoney says.

"I know it's hard to think about pensions in your thirties when you have so many financial demands and this is where the idea of imposing mandatory pensions arises," says O'Mahoney. "There will have to be a national debate and consensus is important."

He is also keen to point out that, while many of this generation may not already have pensions, they are contributing to purchasing an asset through their mortgage and are investing in the Irish economy.

"We should be encouraging twenty and thirtysomethings to buy houses and to invest in Ireland because, in the past, those people emigrated to London and New York and bought homes there and contributed to those economies.

"Now they are staying at home, they are buying houses and investing in Ireland and that is what you want," he says. "There tends to be great outcry about a 28-year-old buying a house and borrowing €300,000. I think that is much better than not doing it."

The National Pensions Review also supported allowing savers who put money into pension plans an opportunity to access 30 per cent of the fund tax-free before the age of 45, something which would make it a more attractive option.

It has also called for a change in the tax rates applying to pension contributions, ensuring that all payments into these funds receive tax relief at the higher 42 per cent rate. O'Mahoney believes that the extension of the 42 per cent tax relief to all pension contributions should be embraced because it is equitable.

At the moment, lower-paid workers, who typically have less pension coverage, can claim relief at the lower 20 per cent rate.

Over the coming months, the Pensions Board will fine-tune recommendations that may pave the way for mandatory pensions or a somewhat softer option. Its new chairman says that, while Ireland shouldn't operate as a "nanny state" on the pensions issue, you can't leave everyone to their own devices. "That just doesn't work," he says.

Factfile

Name: Tiarnan O'Mahoney

Age: 46

Family: Married to Felicity, they have three children

Education: From Dublin, he went to St Benildus Kilmacud then studied Commerce, Accounting and completed an MBA at UCD

Career: He began his career in the dealing room at Irish Intercontinental Bank (IIB) before joining Anglo Irish Bank in 1985, where he rose to become chief operating officer. In 2004 he left Anglo and has gone on to establish ISTC, a company that sources and provides capital for banks globally

Why he is in the news: He has just been appointed chairman of the Pensions Board