Notes on the Front

Good bloody grief.  ICTU and David McWilliams have teamed up, calling for the nationalisation of the banks.  Harvey Norman wants to slit his throat and wishes he never heard of Ireland.  Massive retail job losses are predicted in the New Year.  All is changing, changing utterly and today's media obsession is Mary Harney's hair.  It reached surreal levels when Mary O'Rourke was asked on News at One how often she had her hair done.  I accept that you have to mix the play-list between the light and the heavy (it can't all be Bartok and ZZ Top).  But when the media swarms over the trifling at the expense of the significant, public debate suffers.

And most of the media missed a big one – the publication of TASC's  'Making Pensions Work for People', a provocative analysis from the TCD Pension Policy Research Group.  And timely, too.  For though pensions haven't featured much on the news bulletins (but wait for a company pension scheme to go under), the recession is taking a hell of a toll on people's living standards in old age.

The Government is urging everyone to take out a personal pension, especially since company defined benefit schemes are closing its doors to new members.  Sounds responsible – save for old age, rainy days and all that.  But TASC and the TCD Group show just how socially irresponsible that is, how potentially ruinous it could be for people in old age.

The current private pension system is based on a gigantic roulette wheel and everyone, except the house, will soon come out the loser.  It is based on investing people's pension contributions into the equities market which, hopefully, will produce a return which can then be paid out to people in old age. So how's it working out?  Not well.

In the last year, over a third of the value of pension funds have been wiped out.  Of course, apologists for the private pension industry will say you gotta look at the long term.  Well, in the last 10 years, pension funds have averaged an annual increase of less than 2 percent.  In other words, in real terms, they have made a loss. 

And it costs taxpayers a lot, a hell of a lot to achieve these losses.  The Revenue Commissioners estimates that it costs taxpayers nearly €3 billion a year to subsidise the private pension sector.  And where does most of that money go (apart from pension fund fees)?  The TASC report reveals that between 2/3 and 75% of the tax subsidies, or expenditure, for employees and self-employed go to the top 20% of households.  A lot of money for the few people who need it least.  What a system!

Meanwhile, the majority of private sector employees don't have pension coverage; a growing number that do don't make enough provision; and even if they did they can't be certain their pensions will be worth much because on depends on the troughs and peaks of the equities market which, by definition, builds in considerable uncertainty in the system.  No wonder people worry about their old age.

So much for the analysis.  What's the solution?  Simplicity itself.  TASC proposes a new two-tier system:

• The first tier:  A basic income for everyone above the age of 65 – equivalent to 40 percent of the average wage.  Means-testing and contribution records would be done away with.  If you're over 65, you would get, in today's terms, €290 per week.  That would immediately abolish pensioner-poverty and provide a huge stimulus to older people's living standards.

• The second tier:  a top-up pension, operated through the PRSI system, to ensure that no one receives less than 50 percent of their final salary (up to a maximum threshold – which would be nearly twice that average industrial wage).

Pretty neat.  The great virtue of this proposal is that it provides people with certainty – certainty over their future, certainty over their living standards.  Whatever else we may have to worry about in old age – health, capacity, our children and grandchildren – at least we won't have to worry about income. 

Is this affordable?  Absolutely.  TASC proposes that employees, employers and the state pay a small percentage into the social insurance fund (2.5 percent); this along with diverting the massive tax subsidies, which disproportionately favour higher income groups, into this new system would pay for it.  Most employees would end up paying less than they do on their current private pension contributions; businesses which pay into pension funds would certainly benefit from the reduced contribution.  And the State (the taxpayer) would benefit from the abolition of inequitable tax reliefs.

Make no mistake:  pensions are set to become a major battleground as the Government moves to models that effectively out-source and privatise people's living standards in old age.  Fortunately, we now have, thanks to TASC, an alternative, socially-responsible formula for progressives and trade unionists to rally around.

It's a winning formula.  It is a timely formula.  It has the capacity to resolve a growing crisis in our pension funds and in our ability to provide for people in retirement.

Now, if we can just resolve Mary Harney's hair, then we can start debating real issues.