The debate on the strengthening of our pension system is back on the national agenda of issues that will affect our society. The latest report of the Pensions Strategy Group contains a number of tactical measures that reinforce the national strategy for encouraging people to work for longer so that they enjoy a higher quality of life when they retire and to help the economy grow.

There are some issues that will remain controversial. But the great merit that I see in this report is the emphasis on the need for cultural change in the way that we look at work and retirement. Our society is changing at a very fast rate. The welfare state model that we adopted decades ago needs to be calibrated to ensure that the ‘free’ benefits that the state provides remain sustainable.

One of the principles adopted by the Pensions Strategy Group emphasises “the need for a clear definition of the objectives of the pension system”. One sobering reality that people face when they retire today is that their quality of life often takes a big dip because the national pension on which they relied is not sufficient to cater for the style of living they are used to. The reaction of many pensioners is that they have been short changed by the system as they were promised that the national pension would cater for all their needs.

Empirical research shows that most people start to fret about their retirement income when they are within 10 years of retiring. This is often far too late to do anything significant to avoid financial hardship when one stops working. The culture of saving for a rainy day is no longer embraced by various generations that make up today’s society. Arguably the last generation that considered saving as a desirable virtue was the baby boom generation. They are now retiring and realising that any savings they may have made are serving them well to maintain the style of life they are used to.

Put simply, relying solely on the national pension scheme to finance your retirement needs is a risky strategy. At best, the national pension can be a safety net to protect one from crushing under the often unexpected expenses that old age can spring on any of us. The big dilemma that policy makers, employers as well as workers face is how to promote more savings in a context of tough fiscal challenges, threats to competitiveness and the desire to reap the benefits of a consumption-oriented popular culture.

To succeed, occupational pension schemes require a major cultural change

Over the past several years, I have been ambivalent as to whether encouraging a savings culture should be based on mandatory regulations rather than positive incentives.

Experience has convinced me that cultural change can be achieved more effectively if we encourage people to change through positive incentives rather than mandatory impositions. It is in this context that I believe that the Pensions Strategy Group is right in not proposing the introduction of a mandatory second pension at this stage.

But we need to discourage the culture of entitlement and of dependence on the state to cater for most of our needs. It is no longer – and it really never was – realistic to expect high quality medical and educational services, as well as generous pensions without increases in taxation.

But increasing taxation will affect our competitiveness and the ability of our entrepreneurs to create more jobs.

The time has come to encourage the setting up of occupational pension schemes through which employers and employees contribute to build a pensions pot for every worker. To succeed, these schemes should initially be voluntary and supported by fiscal incentives to encourage both employers and employees to buy into this concept.

To succeed, occupational pension schemes require a major cultural change in the mindset of employers, trade unions and employees. Today organised labour gives massive importance to wage increases on a regular basis – increases that in most cases are higher than the rate of inflation. This has enabled most workers in the past decades not only to cope with cost of living increases but also to improve their standard of living.

Employers, on the other hand, rightly point out that wage increases that are not supported by improvement in productivity affects their companies’ competitiveness. International institutions and public policy makers fret about the ‘pensions time-bomb’.

The way ahead is about encouraging people to be more self-reliant to avoid austere living when they retire.

johncassarwhite@yahoo.com