Ireland’s private pension funds have been heavily hit by the financial crisis, with real losses of 37.5% in 2008 - - the worst investment performance for private pensions in the 30 OECD countries. In a report published on Tuesday, the OECD - - the Paris-based Organisation for Economic Co-operation and Development - - said more than 30% of Ireland’s pensioners live in poverty (on international measures). This is the third highest old-age poverty rate among the OECD countries and well over double the OECD average.
Only Korea and Mexico of the 30 OECD countries have higher old-age poverty rates than Ireland. Although increases in public pensions since that point will have improved the economic position of older people since 2005, the report says there is a need to resolve the debate over a second pension. Ireland and New Zealand are the only OECD countries that do not have mandatory second pensions.
The majority of Irish private sector workers do not have an occupational pension while public sector staff have pensions indexed to their last job, for life.
The Minister for Finance Brian Lenihan said last February, that the total cost of a State pension for an Irish public sector worker, hired after 2004, was 26.1% of pay, and the employee paid on average 4.8% of the cost, before the introduction of the Government’s controversial pension levy.
The report says governments must continue reforms to ensure that public and private retirement income provision is socially as well as financially sustainable.
Pension funds in Ireland notched up the biggest losses in the developed world last year, according to a stark new report.
With rising unemployment and falling tax revenues squeezing public finances, OECD governments face budget deficits of nearly 9% of national income on average in 2010. This leaves little room for more generous public pensions, according to the 2009 edition of the OECD’s biennial Pensions at a Glance. Some countries have already had to cut back on future public spending on pensions.
But private pension schemes have also been badly hit by plunging stock markets, and the way they operate needs to change, says the report. Reforms should include better regulation, more efficient administration, clearer information about risks and rewards of different options and an automatic switch to less risky investments as people near retirement.
Because of the long horizon involved in pensions - - with 60 years on average between when people make their first contribution and receive their last benefit - - all kinds of pension provision are subject to risks and uncertainties of different kinds. Diversifying pension provision remains the right strategy, in the face of demographic, political, economic and financial risks, according to the report. Rolling back reforms and trying to rely on public pay-as-you-go financed pensions alone is the wrong way to go.
In addition to analysing the impact of the crisis on pensions, Pensions at Glance 2009 also includes features on the incomes and poverty of older people, recent pension reforms and on the coverage of private pension schemes. The publication also provides comparative indicators on the national pension systems of the 30 OECD countries.
The 30 member countries of OECD are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.