TheSpanish use the word mañana to describe an unspecified time in the future. If my instinct is not betraying me, I believe that this is the solution that will be proposed for the tackling of the serious pensions’ adequacy and sustainability issues.
Pressure from the IMF, the rating agencies and the European Commission may have led to an official reaction by the government to bring the issue of pensions’ reform back on the economic agenda. Sustainability and adequacy are different aspects of the same issue. One cannot credibly discuss one and ignore the other.
The sensible 2005 report by the Pensions Working Group advocated the introduction of a mandatory Second Pillar and a voluntary Third Pillar for the pensions’ system. The Second Pillar should have been introduced in a neutral way on January 1, 2007. This was a time when some were nurturing illusions of unprecedented prosperity. And yet, up to now, the Second Pillar for pensions is still just a recommendation in a report that is now being dusted.
I have no crystal ball, but I suspect that the mandatory nature of the Second Pillar will soon be shelved up to mañana - an unspecified time in the future. This makes some sense, because the last thing we need now is an assault on employers’ cost of labour, or a raid on employees’ take-home pay. When the going was good, we indulged in raising wages, especially in the public sector, without a corresponding rise in productivity. Now when we are struggling to stimulate economic growth, we certainly cannot afford to make employment more expensive.
So, we have to make do with a voluntary Second Pillar where employees will be encouraged to save more, possibly through some form of fiscal incentives and a glitzy educational campaign. Some politicians, trade unions, employees and employers will hail this as a sensible way forward. And it will be a sensible way forward, if we remember that, on their own, voluntary schemes are unlikely to resolve this problem. We may think that we are gaining time, but I fear that time is not in our favour.
It is in the nature of human behaviour to live for today and forget about tomorrow. Preparing for retirement demands a disciplined behaviour from the very first years of employment. This behaviour consists of simply forgoing current consumption through saving part of one’s income so that on retirement one finds a pot of assets that will guarantee a decent quality of life.
I doubt how effectively voluntary pensions’ schemes will tackle the current long-term challenges of our pensions’ system. There will be many who cannot afford to save anything, because they are already struggling to provide for today. Others will just transfer some of their existing savings to new pension schemes simply to benefit from the fiscal incentives linked to retirement products. Others are simply undisciplined and will not want to sacrifice anything from their present lifestyle because they foolishly believe that these problems will disappear in time.
With productive investment much lower than it needs to be to encourage strong economic growth, with our employment rate being the lowest in the eurozone, and with educational attainment among the worst in the EU, the prospects for strong economic growth remain weak. These elements on their own are good reason not to believe that the pensions’ reform can indeed wait for ever. To this one needs to add the difficulties that the social partners will face to come up with an agreement on when the time will be right for the Second Pillar to become mandatory.
In the meantime, thousands of present and future pensioners will continue to face hardships and dejection as they see the quality of their lives deteriorate as a result of inadequate pensions. Yet, there are other solutions that can start to tackle the pensions’ adequacy issue, but these are painful and probably also taboo for politicians, trade unions, employees, and employers alike.
The UK government, for instance, has given workers the right to continue working beyond retirement age, if they so like. Others are looking at increasing the working week by an hour or two to boost productivity and finance future retirement plans, and others are reviewing social services in general to get their welfare priorities in the right order.
The mañana solution without a strong political will to be fair with present and future pensioners is a weak solution at best.
jcassarwhite@yahoo.com