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Pensions Reform

By Paul Cummins FCCA AITI MSc.Multimedia Systems

11 October 2004

 Pensions reform will be a topic holding centre stage over the next twelve months. The eagerly awaited publication this week of the UK 's Independent Pensions Commission Interim Report ( serves to focus on the pressing issue of pensions reform facing business and governments worldwide. The issue is how to fund the future pension entitlements of today's workers. It is widely accepted amongst commentators that workers are saving too little for their old age.Hence the need for reform.This problem is exacerbated by the startling increase in longevity in recent years within western countries, lower birth rates and reduced investment returns from pension fund investments

The options for addressing pensions reform are stark. They include the following:


  • Incentivise greater saving
  • Ask employers to pay more
  • Increase taxation to fund any shortfalls
  • Extend the working life by raising retirement ages
  • Raise state pension age
  • Reduce pension benefits
  • Governments to start building reserve funds from current expenditure

It will be interesting to see to what extentt business and EU governments react to the Interim Report of the Independent Pensions Commission on pensions reform. Certainly a debate needs to take place in each country on this issue. For starters, the mind boggling complexity of pensions regulation and products needs to be simplified. Some of the graphics on the website will assist in simplifying the concepts. Secondly, EU countries could do worse that review the approach adopted by Ireland to providing for future state pension benefits. Ireland has set up an Irish National Pensions Reserve Fund (NPRF) and has committed to contributing 1% of GNP to the Fund annually.

Pensions reform needs to be given greater priority by all governments. Without sustainable pensions and minimum income guarantees for retired workers; without easy means for workers to make and want to make additional voluntary contributions to their pension funds, the seeds of unrest and social conflict will find rich and fertile soil.So reform is an imperative rather than an option.