Your Money

Prospect of a pension shortfall is not to be underestimated

Contradictions in the British approach show why it would be a mistake to emulate it

It has long been argued that pensions need to be tightly regulated and conservatively managed, but reforms announced by British chancellor George Osborne turned this idea on its head.
It has long been argued that pensions need to be tightly regulated and conservatively managed, but reforms announced by British chancellor George Osborne turned this idea on its head.
Tue Apr 22 2014 - 01:00

Alongside a house purchase, pensions remain one the single largest financial investment for most people during their working lives. Hardly surprising either, as increased longevity means people face the need to build ever greater pension funds to provide an income in retirement.

And, given the parlous state of the Social Insurance Fund from which the State pension is supposed to be paid, it would be foolhardy for anyone in the early years of their working life to rely on it to deliver a reliable income in later life.

Given the high stakes – and the natural inclination to short-termism that could see pension funds raided ahead of time if allowed (as it has been by this current Government) – it has long been argued that pensions need to be tightly regulated and conservatively managed.

That was turned on its head recently when British chancellor of the exchequer George Osborne announced the scrapping of rules that meant most UK workers were obliged to purchase an annuity to fund their retirement.

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From next year, under the rules announced in the last British budget, it George Osborne announced the scrapping of rules that meant most UK workers were obliged to purchase an annuity to fund their retirement. The argument was that people were sensible enough to be allowed full control over their funds.

But what then of the announcement last week by British pensions minister Steve Webb that people will be given estimates of how long they are likely to live – depending on factors such as their gender, lifestyle habits such as smoking or drinking, their career and where they live. The point, according to the minister, is that people habitually underestimate their life expectancy.

So they accept people underestimate the funds they will require in retirement but make no provision for a minimum fund threshold such as exists in Ireland with the approved minimum retirement fund.

And why should we worry? Unfortunately, the paucity of innovative policymaking in Ireland means that all too often we look elsewhere for solutions – one only has to consider the current controversy over Universal Health Insurance. And, when it comes to pensions, the UK, with its broadly similar pensions landscape, has often been the source of Irish inspiration.