Revisiting the pensions reforms
The time has come to put pensions reforms back on the national agenda. The breakthrough made some years ago to tackle the national pensions issue now needs to be followed up with further action. It is time to implement those parts of the reforms that...
The time has come to put pensions reforms back on the national agenda. The breakthrough made some years ago to tackle the national pensions issue now needs to be followed up with further action.
It is time to implement those parts of the reforms that can really bring about change in the way we handle this important social and economic strategy. It is also the opportune time to rethink some of the original provisions that were included in the reforms suggested by the committee entrusted to make recommendations to the government.
The recent financial crisis has changed certain aspects of the context in which the original recommendations for change were made. One major area that calls for a rethink relates to those who are already retired, or will be retiring in the next five years.
These reforms have to be equitable for all those who over the years have paid their national insurance contributions. Many of those already retired, or about to retire, believed that they would have received eventually a pension equivalent to two-thirds of the average of their salary in the last few years of their employment.
But even those who were less optimistic about the likelihood of the removal of the ceiling on the maximum pension payable and started to put some savings aside to have some nest eggs when they retired, today face bleak prospects. The current financial crisis and the historically low interest rates paid by banks on savings have decimated both the capital and the income from investments for many of these aging people.
The government needs to rethink its strategy by helping these people to help themselves and avoid becoming and underclass of our society. For instance, restrictions that prevent these people from continuing to work beyond the official retiring age should be eliminated immediately. The government as the biggest and model employer should take the lead by setting an example for other to follow.
It may be too late to encourage these people to put aside more of their income for making their retirement more comfortable. But with the right attitude and flexibility those who are already in or near retirement can be given a lifeline through fiscal means.
No less crucial is the importance of convincing the Generation X, those born between 1965 and 1976 to start putting some money aside to cater for their retirement. The recent interest rate cuts can potentially perpetuate the dangerous spending culture built on the availability of low-cost credit and the practical elimination of incentives to those who value thrift and frugality. This is one of the reasons why so many people are in trouble today.
The Gen Xers may see retirement as a dim light in the distant horizon, but the fundamentals of economic sustainability, both on a personal and national level, need to be established now. The reforms proposed some years ago were partly based on the need to introduce a contributory element in our pensions system. At the time it was considered prudent not to add any burden on employers and employees alike in the form of compulsory added pension related contributions. One could argue that in today's circumstance such compulsory added costs are even less advisable.
This may well be the case. But we have to be conscious that human nature is such that most of us always find a good argument to postpone difficult decisions. There is always a good reason for doing nothing, except that doing nothing for any length of time is only going to make the pensions problem bigger.
We can start with a soft approach based on rewarding people to save more for their retirement by granting them fiscal benefits. I believe that encouraging consumption, even in this difficult economic climate, is not going to do much to get us out of the present economic downturn.
We import practically everything we consume and so, by promoting the savings culture to ease the pensions problem, we will not be affecting much our chances of a quick return to significant economic growth. In fact, what will bring us out of this black hole is more likely to be an improvement in our competitiveness thorough better education and productive investment.
Once the economic situation improves, we will need to implement the more tough recommendations of the proposed reforms by making mandatory additional contributions for the building of a pension's pot for everyone who works.
Extending the retirement age to 65 was unpopular, but relatively easy. The difficult part is implementing the other changes proposed and introducing further ones to guarantee a safe and fair future for all pensioners.
johncassarwhie@yahoo.com
It is time to implement those parts of the reforms that can really bring about change in the way we handle this important social and economic strategy. It is also the opportune time to rethink some of the original provisions that were included in the reforms suggested by the committee entrusted to make recommendations to the government.
The recent financial crisis has changed certain aspects of the context in which the original recommendations for change were made. One major area that calls for a rethink relates to those who are already retired, or will be retiring in the next five years.
These reforms have to be equitable for all those who over the years have paid their national insurance contributions. Many of those already retired, or about to retire, believed that they would have received eventually a pension equivalent to two-thirds of the average of their salary in the last few years of their employment.
But even those who were less optimistic about the likelihood of the removal of the ceiling on the maximum pension payable and started to put some savings aside to have some nest eggs when they retired, today face bleak prospects. The current financial crisis and the historically low interest rates paid by banks on savings have decimated both the capital and the income from investments for many of these aging people.
The government needs to rethink its strategy by helping these people to help themselves and avoid becoming and underclass of our society. For instance, restrictions that prevent these people from continuing to work beyond the official retiring age should be eliminated immediately. The government as the biggest and model employer should take the lead by setting an example for other to follow.
It may be too late to encourage these people to put aside more of their income for making their retirement more comfortable. But with the right attitude and flexibility those who are already in or near retirement can be given a lifeline through fiscal means.
No less crucial is the importance of convincing the Generation X, those born between 1965 and 1976 to start putting some money aside to cater for their retirement. The recent interest rate cuts can potentially perpetuate the dangerous spending culture built on the availability of low-cost credit and the practical elimination of incentives to those who value thrift and frugality. This is one of the reasons why so many people are in trouble today.
The Gen Xers may see retirement as a dim light in the distant horizon, but the fundamentals of economic sustainability, both on a personal and national level, need to be established now. The reforms proposed some years ago were partly based on the need to introduce a contributory element in our pensions system. At the time it was considered prudent not to add any burden on employers and employees alike in the form of compulsory added pension related contributions. One could argue that in today's circumstance such compulsory added costs are even less advisable.
This may well be the case. But we have to be conscious that human nature is such that most of us always find a good argument to postpone difficult decisions. There is always a good reason for doing nothing, except that doing nothing for any length of time is only going to make the pensions problem bigger.
We can start with a soft approach based on rewarding people to save more for their retirement by granting them fiscal benefits. I believe that encouraging consumption, even in this difficult economic climate, is not going to do much to get us out of the present economic downturn.
We import practically everything we consume and so, by promoting the savings culture to ease the pensions problem, we will not be affecting much our chances of a quick return to significant economic growth. In fact, what will bring us out of this black hole is more likely to be an improvement in our competitiveness thorough better education and productive investment.
Once the economic situation improves, we will need to implement the more tough recommendations of the proposed reforms by making mandatory additional contributions for the building of a pension's pot for everyone who works.
Extending the retirement age to 65 was unpopular, but relatively easy. The difficult part is implementing the other changes proposed and introducing further ones to guarantee a safe and fair future for all pensioners.
johncassarwhie@yahoo.com