Irish Pensions System in Need of Reform

IBEC - the Irish Business & Employers' Confederation - has warned that a number of defined benefit pension funds in Ireland "could collapse, unless urgent action is taken by the government and the pensions board".

The organisation says that "draconian funding rules are placing huge burdens on employers and could threaten jobs".

Such a statement is not really a surprise, as the people represented by IBEC - Irish employers of all kinds, but including the most greedy and ruthless capitalists we have in the country - are always looking for ways to pay their people less and squeeze more profit out of people, the state and the system of social partnership.

In a defined benefit scheme a person's pension is a guaranteed amount and is based on a final salary.
These schemes have become less popular with employers over recent years. Instead employers have implemented defined contribution schemes, which use pension funds and do not have a guaranteed final amount.

Last week the Irish Association of Pension Funds said that a number of private company schemes were in real danger of collapsing over the coming months.

These statements highlight a problem I have been raising in articles and in conversations with various politicians for years. But so far without any success or positive response.

The fact that - apart from the basic state pension - the whole pesions system in Ireland is in private hands is the sole reason for the potential danger of collapses and failures.

When Ireland achieved independence from Britain, we inherited many British institutions and kept them going just as they were, without ever looking into the possibility of replacing them with better alternatives. The way our parliament is run, our legal system, the banks and insurance companies, and even driving cars on the left side of the road are some examples for this. And the private pension funds are another.

If we want to avoid that money reserved to pay pensions is put in danger and used for the greedy speculations and gambling by private fund managers, there is only one way: to put the whole system of pensions under the direct control of the state.

This is done in various other countries with great success. Take for example Germany, where two state-controlled public agencies run the entire pension system. They collect the regular contributions from the people - often that money is automatically deducted from wages, just like taxes - and keep the records for everyone. And when one reaches pensionable age, they pay the pension, based on the amount of contributions one has accumulated over a lifetime.

There is no speculation, or exposure of pensions money to risly international finance schemes and scams. All is safe and sound, with no risks to pensioners. The system is perhaps a bit bureaucratic in its structure, and not unlike the civil service. But that is a condition people are very happy to accept, as they know it guarantees them their pensions, regardless what happens to the economy.

Ireland could adopt the same system, which would do three things at the same time:
1) Make sure that all pensions and pension funds are safe and not used for speculation and gambling.
2) Make sure that everyone who works also contributes to the pension fund, and that all employers do the same (and in the appropriate amount).
3) Create a secure fund worth billions, which is under state control and thus an addition to national stability.

As Brian Lenihan is currently looking into various option to change and reform the financial industry, he would be well advised to look at a long overdue reform of the Irish pensions system as well.

The Emerald Islander