MCC/TWP pension scheme will need a ‘genuine’ rescue by 2020 if it is to be saved from insolvency article The Pension Protection Fund (MPC) has warned that the Irish Pension Scheme (IPS) is in “deep trouble” with its pension scheme being “entirely reliant on the private sector” for funds.
The EU has said the EU’s “fundamental rule” of the EU is that no state pension scheme can be considered “inadequate” in the face of the current global financial crisis.
The Government has made significant progress in the last three years in reforming the scheme, but is facing mounting challenges.
The Irish government has been seeking to address some of these issues, and will now introduce a new pension plan, which will provide “a credible and viable solution” to the looming crisis, the MCC said.
The UK, Canada and Australia are also expected to implement pension reforms in the coming months.
The US has introduced a new version of its own plan to cover older workers but this will not be included in the new scheme.
Meanwhile, a report by the Institute for Fiscal Studies (IFS) this week warned that Ireland could face “significant difficulties” in meeting its pension obligations as a result of the crisis.
“In our view, the Irish Government’s plan for reforming the Irish State Pension (ISP) is likely to fail to meet the [fundamental] rule that all state pensions should be of sufficient quality to be considered inadequate,” the report said.
“We expect the Government’s proposed reforms to be of a different nature to those in place in the UK, the US and Canada, and would therefore be unlikely to be adopted by those countries.”
The report, entitled Ireland’s state pension system: A risk-taking approach to reforms, said that Ireland had made a “massive” and “large” deficit reduction in recent years.
However, the report noted that the current crisis could result in a “significant decline in the Government Pension Plan (GPP), which is the primary pillar of the ISP”.
The report also warned that any reform of the pension scheme would “be politically unpopular and likely to lead to further losses of revenue”.
The Irish Government has set out a series of reforms to the Irish state pension, including a series that have been approved by the General Election in June.
The IFS report, however, warned that some of the reforms, such as the introduction of a “genuine” pension fund by 2020, were not viable.
The pension fund will be required to “fundamentally transform” the scheme to ensure it can “continue to fund the State’s pension liabilities” and it will be a “viable” solution to the crisis, it added.
“It will be critical that the Government provides clear, coherent and robust assurances to the Government and the electorate that the plan is fully sustainable in the medium term,” it added in a statement.
The report noted the Government has pledged to reduce the deficit to “zero” by 2020 and said it was “considering the prospect of raising revenue”.
It added that the government’s proposals would “require the creation of new tax revenue streams, in particular the introduction, by 2020 of a new tax on pensions”.
It also warned of the “great risk” of a possible crisis and called for the Government to address the problem by the end of this year.