Keeping the State pension age at 66 is unsustainable, the Department of Finance has said as people live longer and the birth rate falls.
In an analysis of the impact of Ireland’s aging population on the public finances, it says the bill for failing to increase the age to 67 as planned this year, and to 68 in 2028, will be around €50 billion over the longer term.
“A no-policy change approach is, accordingly, unsustainable,” the report states in unusually forthright language. “Structural reforms must be a key part of the policy response.”
The analysis comes as the Government examines the report of the State Pensions Commission. It is understood to recommend long-fingering any increase in the State pension age. That would see no change before 2028, with the pension age rising incrementally over a number of years from there, hitting 67 in 2031 and 68 in 2039.
The Commission was established after state pensions became a doorstep issue at the last general election, a move that led to all parties calling either for planned increases in the pension age to be frozen or even reversed, with the age going back to 65.
Minister for Finance Paschal Donohoe said on Friday that failure to deal with the pension issue now will burden our children's generation with a serious debt problem.
“Looking at the years ahead, the analysis ... highlights the need for serious policy considerations in this area,” the Minister said. “Delaying policy decisions in this area has the potential to negatively impact the public finances in the years ahead.”
The report says that, by 2050, the annual cost of age-related expenditure – pensions, healthcare, long-term care – is set to jump more than fourfold, costing €17 billion more, in today’s terms, than in 2019.
Tax increases will not be able to fund that additional spending, it warns, not least because Ireland’s birth rate is falling and the proportion of the population of working age will shrink over the same period.
Suggested reform
Policy reforms, such as linking the State Pension Age to life expectancy, could significantly reduce the cost burden, the Department says.
This would see the pension age rise to 67 this year and to 68 in 2028 as planned. After that, for every additional year of life expectancy, the pension age would rise by nine months.
Men born today in Ireland are expected to live 17 years longer than those born in 1951, the report says, while women are expected to live 18 years longer. By 2070, each will live another five years longer again.
The department says, Ireland’s debt compared to modified gross national income (GNI*) – seen as the most accurate measure of the Irish economy – will double its pre-Covid level by 2070 if action is not taken.
“Without policy intervention to mitigate the inevitable implications of ageing demographics, the public finances will be on an unsustainable trajectory,” the report states.
