March 2016        

The pensions “time-bomb”

Alan Hanlon

On 29 April 2015 the Irish Independent reported that the government “wants to siphon billions in taxpayers’ money into a special fund for public sector workers in a bid to avoid a ‘pensions time-bomb’.” This came as the then government was announcing €1½ billion in tax cuts and extra spending for its well-heeled supporters.
     There were other dire warnings about the future of state pensions along the same lines. Then in January 2016 the Irish Association of Pension Funds issued a statement describing the “country’s ticking pension time-bomb” as “one of the biggest crises facing Ireland.” There is a clear agenda of undermining the provision of state pensions and forcing people to take out private pensions.
     The “pensions time-bomb” is an alarmist scare tactic used by the pensions industry and neo-liberals to undermine and erode support for the state retirement pension. The idea behind it is that at present about five workers support one pensioner. On the grounds that people are living longer and workers are getting older, we will end up in a situation some time in the future where there are not enough workers to support those in retirement.
     This is neo-liberal propaganda that is seeking to undermine the provision of state pensions and force people to take out private pensions, with the consequence of passing billions into the hands of the private insurance companies. So far the pensions industry has lost billions in value from pension funds. The burden of sustaining those pensioners who have lost their pension funds will fall on the state, not on the pensions industry.
     The private sector has been crying wolf over this so-called “time-bomb” since at least 1995, that is, more than twenty years ago. It is believed that if it is repeated often enough the lie will be believed. The Green Paper on Pensions (2007) regurgitated the myth on behalf of the pensions industry. It predicted that the population over sixty-five will have tripled by 2060, according to 2006 figures, and the pension support ratio (the number of workers supporting a pensioner) will have decreased from 5.6 in 2006 to 1.8 in 2060.
     Therefore, the idea goes, the burden of taxation on the worker will be unsustainable, and so everyone should take out a private pension. The failure to increase state retirement pensions as part of the campaign of “austerity” was both a stealth tax and part of the programme of undermining its value.
     In 2014 the CEO of Mercer, Tom Geraghty, was making similar dire warnings about the time-bomb, predicting that 1 in 5 thirty-year-olds would live to the age of one hundred and there would be only two workers for every pensioner, compared with five in 2014. (Needless to say, Geraghty made no mention of the fact that workers at present with no private pensions are supporting private-sector pensions.) According to Geraghty, this showed the “urgency for the Government to continue to push ahead with its planned introduction of auto-enrolment and ultimately mandatory pension saving.”
     Most people think they are paying towards their pensions when they pay PRSI. However, no mention of this by Geraghty.
     More than half of all European occupational pension schemes are domiciled in Ireland, so there is a huge interest by the pensions industry in having appropriate legislation at both the EU and the national level. Brian Hayes, a Fine Gael member of the EU Parliament, leads the negotiations on the Institutions for Occupational Retirement Provision (IORP II) Directive. In Ireland 41 per cent of the working population have a private pension in addition to the state pension. Hayes wants this to change so that everyone within the EU has a private pension. He also wants to “free up” pension funds in the area of investment. Barriers that at present restrict such funds, such as ensuring that a scheme is fully funded, would be removed.
     The pensions industry and the Green Paper all assume that the population will follow a linear path to a particular level and age distribution in accordance with current data. No account is taken of emigration resulting from financial crises in capitalism, or even refugees fleeing imperialist war zones. The chaos caused by capitalism and by imperialist wars is so unpredictable that it is impossible to say what will happen next week, let alone ten or twenty years from now.
     No account is taken of alternative data. The EU statistics agency, Eurostat, predicted that the population of the 26 Counties in 2060 would be 6.7 million (at present 4.6 million), with a pension support ratio of 10 for 4, i.e. the same as the present one.
     The problem for the pensions industry is that the dire predictions in relation to the state pension apply equally to private pensions. At present everyone without a private pension supports the funding of private-sector pensions through the tax system. The OECD advocated reducing tax relief, but the Fine Gael and Labour Party government, in league with the pensions industry, refused to remove this stealth tax. In the long run, private-sector pensions are both inefficient and unsustainable.

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