Irish give guide to super future

By BRIAN FALLOW

As the savings industry seeks to forge a durable national consensus for superannuation policy, it is looking to Ireland for lessons on how to do so.

When the Irish set about overhauling their pension system, they started from what by New Zealand standards is an enviable position.

The demographics are favourable. Ireland has five economically active people for every one superannuitant, compared with four to one here.

About half the Irish workforce is already covered by workplace pension schemes, compared with an eighth of the New Zealand workforce.

The tax system exempts contributions to private pension schemes and the income earned by those schemes, only biting when funds are ultimately withdrawn - an exempt-exempt-taxed system, compared with New Zealand's taxed-taxed-exempt one.

The Irish have a political tradition of thrashing out a consensus on issues related to employment and social spending by a tripartite partnership between the Government, employers and unions.

And finally there is the "Celtic tiger" effect of stellar economic growth and virtually full employment.

The reproducible part of that combination is the process of arriving at a politician-proof consensus. So Anne Maher, chief executive of the Irish Pensions Board, was invited to address a savings forum organised by the Investment Savings and Insurance Association in Wellington this week.

The board, which has both regulatory and policy development roles, embodies the tripartite partnership approach with employer and union representatives among its members.

In 1996, the Irish embarked on a widespread national debate and review of superannuation policy designed to arrive at a basis that would serve for 30 years.

The results of extensive consultation and research were policy changes designed to increase the proportion of the population covered by private pension schemes, short of making them compulsory, and to limit the future fiscal burden of an ageing population.

It was also held that it was important for the pension system not to be a political football, because it would lack continuity and stability.

The universal state pension is based on 34 per cent of average industrial earnings and is designed to avoid poverty and provide a replacement income for the lower paid. At the moment that is €157 ($309) a week.

To cap the fiscal risk from an ageing population, the Irish have put in place a Cullen-style reserve fund getting 1 per cent of gross national product a year, not to be touched until 2025.

The fund was started with the proceeds of the privatisation of the incumbent telecommunications company.

On the private provision side, Ireland rejected a compulsory system, at least for the time being.

But in order to raise the coverage of private pensions schemes from 50 per cent to the target 70 per cent, it has instituted private retirement savings accounts, individual accounts designed for employees, the self-employed and home-makers alike. It has a balanced investment policy and tax incentives.

This year it will be made mandatory for employers to make such savings products available to their employees, though they will not be required to subsidise them.

The scheme will be reviewed in three years. If the extension of coverage proves disappointing it could easily be made into a mandatory one.