Irish Congress of Trade Unions General Secretary David Begg has criticised the Government’s National Pension Framework, saying it was “questionable” to force people to invest more money into private Irish pension funds when their investment record was so poor.
Under the plan, a new mandatory “auto-enrolment” pension for middle- and lower-income workers in the private sector would be established.
Most workers aged over 22 will be automatically enrolled in a pension scheme which will provide additional retirement income on top of the State pension, unless they are already members of an occupational scheme.
Employees will contribute 4 per cent of salary to the new defined-contribution scheme with employers paying 2 per cent and the State another 2 per cent.
“One would have to question the idea of creating these new funds in the private sector, because in 2008 all of the existing occupational pension funds lost about half of there value,” Mr Begg said.
"It's very questionable that we could come along to same people who lost that amount of money and say here take more," he said on RTÉ's Morning Ireland programme.
Ictu had hoped to see some move to expand the National Pension Reserve Fund, which he said, had done “quite well” in contrast to its private counterparts.
The Irish Small and Medium Enterprises Association (Isme) today also condemned the plan, saying the introduction of mandatory employer contributions was “ill-conceived" and would act as another direct tax on employment.
The group’s chief executive Mark Fielding said:“The majority of SMEs will not be able to afford to make a contribution to employees' pension schemes due to the significant costs already being experienced by the sector.
“It is ironic that while the country is attempting to get out of recession and employers are doing their best to maintain employment, the Government are going to increase labour costs, when the opposite should be the case,” he said.
Under the Government's plan, published yesterday, the retirement age will be raised to 66 in four years and eventually to 68 as part of a comprehensive reform of the pension system.
People working longer would definitely have to be part of the mix of any solution, Mr Begg acknowledged.
While the survival age is much greater nowadays, he said, “You cannot expect people in some jobs, such as construction, to work past a certain age. So there have to be different solutions for different vocational groups."
The Government has also undertaken to preserve the State pension at its present value of 35 per cent of average industrial earnings.
The current public service pension scheme will be changed for new entrants from this year, giving them a pension based on career average earnings rather than final salary.
The Government is also considering using the consumer price index in future as the basis for post-retirement increases for public servants. They now rise in line with salaries.
The qualification age for the State pension will rise from 65 to 66 in 2014. It will go up again to 67 in 2021 and up to 68 in 2028. In tandem with raising the pension age, in 2014 the regulation which prevented people from continuing in employment after the age of 65 will be removed.
Another important change will allow people who work in the home for up to 10 years to get full credit for that towards their pensions.
Taoiseach Brian Cowen said that at present there were about six people at work to support every pensioner but, by 2060, that figure would be less than two. Spending on public pensions would increase from 5.5 per cent of gross domestic product in 2008 to almost 15 per cent in 2050.
He added that the Government was committed to ensuring that everyone had an adequate income in old age and that was why such significant resources had been devoted to increasing the basic State pension.
“The State will continue to play its part. But individuals and their employers must also contribute. The proposed auto-enrolment scheme set out in the framework provides a mechanism for maximising pension coverage, particularly among those on lower incomes, involving a contribution by the individual, the State and their employer.”
Minister for Finance Brian Lenihan said the introduction of a new pension scheme for new entrants to the public service was designed to bring public service pension terms more in line with private sector norms and to make a closer connection between contribution levels and benefits received.
Fine Gael social and family affairs spokeswoman Olwyn Enright described the plan as “a massive gift to the pensions industry” which was already sucking €1 billion out of pension provision every year.
Main points
• State pension age rises from 65 to 68, in stages, by 2028
• Introduction of “soft” mandatory pension for most workers over the age of 22 by 2014
• Reduction in tax relief on pension contributions for earners on higher income tax rate to 33 per cent
• Switch to SSIA-style matching contributions from State on pension contributions
• Extension of flexible approach to drawing down pension for all defined-contribution schemes by 2011
• Suggestions for reform of defined-benefit pensions
• New single pension scheme for new public service workers
• Commitment to try to retain level of State pension at 35 per cent of average weekly earnings