The Pensions Working Group has urged the government not to further postpone the introduction of the mandatory 'second pillar pension' since first pillar pensions will gradually become insufficient for pensioners to enjoy the quality of life they are used to.
In a report handed to the Ministry of Education, Employment and the Family, the group warned that further postponement of the introduction of the second pillar "would only exacerbate the issue relating to the adequacy of the average pension replacement rate and thereby require, potentially, more drastic measures in the near future."
It says the second pension requirement should be introduced for those who are 45 and younger.
However, until the workings of the second pillar pension are decided, the group said the government, as from next year, should introduce the voluntary third-pillar pension while making it possible for those who take this option to switch their funds to the second pillar once that becomes possible.
The mandatory second pillar pension would see workers and employers contribute to private pension schemes to supplement their governemnt pension. The third option would be voluntary for those who wish to further top up their pension.
The working group said the Opposition and representatives of employers and employees should be invited to participate in the design and implementation of the mandatory second pension in areas such as the contribution rate and how it will be phased in. Consensus should be sought as far as possible.
However, since this would not happen overnight , the government should consider introducing the (voluntary) Third Pension Framework 'as early as possible' in 2011 and establish the appropriate fiscal instruments to encourage savings for retirement.
"In the next 10 years, a high number of life endowment and other financial products will mature. This provides an excellent opportunity to fast track savings to pensions," the group stresses.
It argues, however, that a pathway into the mandatory second pillar should be designed so that people who today voluntarily decide to save for pensions (in the third pillar) would not be compelled to pay an additional contribution on a mandatory second pensions once this was introduced.
HOME OWNERSHIP
The group noted that while savings have decreased, investment in home ownership continues to increase. Home ownership, however, did not necessarily mean liquidity.
"Thus the working group recommends that the government considers the introduction of schemes such as home equity release schemes, to allow people, should they wish, to leverage their home ownership investment into income during the retirement phase of their life cycle.
PRO-NATAL POLICY
Among other recommendations, the working group says that while the decline in the fertility rate appears to have plateaued, this does not provide for the demographic revistalisation required to counter the shrinking population, with the consequent burden on the first pension. The governemnt, therefore, should consider appointing a task force to draw up recommendations on a pro-natal policy.
REVISION OF PENSIONABLE AGE
Since the longevity of the population is expected to continue to rise, the group recommended that the government should establish a retirement-age longevity indexation mechanism which would raise the retirement age every time there is an increase in the longevity index.