A mandatory private pension scheme targeted at people under 45 years old should be introduced immediately and the pensionable age should be tied to an index on life expectancy, the Pensions Working Group has recommended.
These are just two of 45 recommendations made by the group, which, in its report, stressed that the country could not keep postponing the introduction of the second pillar pension because the present system was becoming increasingly insufficient for pensioners to enjoy the quality of life they were used to.
The report was commissioned by the Employment Ministry which sought a strategic review of the adequacy, sustainability and social solidarity of the pension system five years since the pension reform in 2005.
The group warned that further postponement of the second pillar pension “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.”
Until the method on how the second pillar pension would work was discussed and decided upon, the group suggested the introduction, as from early 2011, of a voluntary third-pillar pension which allows the possibility to switch funds to the second pillar once that became available.
The present pay-as-you-go pension is directed at guaranteeing a minimum standard of living. The second pillar introduces the principle of self-help through which workers and employers contribute to private pension schemes to supplement the government pension and enhance their standard of living. The third pillar institutes the principle of choice, whereby money is put aside to complement the pension income.
The working group recommended consensus on the introduction of the second pillar and how this would work, with discussions involving employers, employees’ representatives and the opposition. It also suggested that, in the meantime, “since this would not happen overnight”, people be prepared and informed on this.
The working group delved into how people were living longer and suggested the official pensionable age be pegged to an index on longevity through a special mechanism. It said pensionable age should increase automatically with a fluctuation of the longevity index.
Other recommendations in-clude a voluntary deposit of children’s allowance in a specific pension fund that becomes the child’s possession once s/he turns 18 and which would then be automatically transferred to the person’s second or third pillar fund.
The group noted that while savings decreased, investment in home ownership continued to increase. Home ownership, however, did not necessarily mean liquidity.
“The working group recommends 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.”
In another recommendation, the group suggested the replacement of the present widowers’ pension, which gives out five-sixths of the national pension, with a full pension.
The present system, the group said, was gender discriminatory as the female spouse too would have contributed through her role as a home carer during her lifetime.
The working group suggested the setting up of a task force to draw up recommendations on a pro-natal policy that balances out the responsibility of raising a family with the aspiration to remain an active participant in the labour market.