The reality of the Irish Budget at the end of 2009 was much better than the expectation as many of the ‘rumoured’ changes to pension provision failed to materialise as the Irish Government sought to plug close to a 12% deficit in their GDP. What was announced was:-
- Final salary provision would be ended for all new public sector staff from 2011 when a new CARE Scheme would be introduced.
- Retirement ages would be increased from 65 to 66 with future increases linked to state pension age.
- An announcement that pension increases being linked to CPI rather than earnings was actively under consideration.
The public sector therefore bore the brunt of the changes with the private sector remaining relatively unscathed. The move to CARE will over time produce cost savings although with a recruitment freeze in the public sector these are unlikely to be seen in the short term. The decision to move from final salary to CARE may also encourage a similar move in the private sector. I also await the impact of the proposals on industrial relations with interest.
It’s unlikely these changes will be the end of it however. Whilst not changed in this budget the taxation of ‘tax free’ lump sums and pension contributions was firmly on the future agenda with the current status quo considered unsustainable, especially as a taxation commission had proposed taxing lump sums in excess of 200,000 Euro.
The size of the Irish market also means it is difficult for it to benefit from economies of scale, something which could be addressed by more flexible financial practices throughout the EU and an increase in the number of industry wide schemes – although as commented previously in this blog the ownership / responsibility issues these types of arrangement present are difficult to overcome other than on a DC basis.
Whilst suffering from similar high level financial economic and public sector pension issues as the UK the market is much smaller which limits options however the trends are inescapable.