Ireland’s reliance on its “comparatively generous” State pension is storing up problems for the future, a new pensions review argues, as it calls for broader private pension coverage and the introduction of a minimum level of mandatory pension savings.
In the Melbourne Mercer Global Pensions Index for 2018, which ranks 34 countries in terms of the sustainability of their pension systems, Ireland has held on to its ranking of 12th.
Achieving a “B” rating, Ireland was placed behind top-ranked Netherlands, Finland and Australia, but ahead of Germany (13th), the UK (14th) and France (16th). The Irish system scored highly for both the adequacy of the expected benefits and the standards of governance applied.
However, Danny Mansergh, head of member communications at Mercer in Ireland, said Ireland's "moderately respectable" ranking, does not "tell the full story".
“The underlying truth is that Ireland provides a comparatively generous State pension, but also one that is set to come under serious fiscal strain as the population ages rapidly between now and 2050,” he said.
Indeed, Ireland was only placed 24th, with a D rating, when it came to sustainability, and the report highlighted Ireland's rapidly ageing population. The ratio of workers to pensioners is set to fall from 5:1 today to 2:1 by 2050, and this is compounded by the country's low level of pension coverage. Figures from the Central Statistics Office show that less than 50 per cent of the population have a private occupational pension.
Over-reliance
“It is clear that over-reliance on Ireland’s comparatively generous State pension must be addressed,” the report said.
Ireland’s State pension is set to rise again next March, with those entitled to the full State pension set to see their weekly pension rise to €248.30.
Mercer said Ireland should take a number of steps to improve its pension sustainability, including increasing the number of employees in occupational pension schemes; introducing a minimum level of mandatory savings into retirement accounts; improving the protection of members’ benefits in defined benefit schemes; and reducing government debt.
Part of this could be achieved through the Government’s intention to introduce auto-enrolment, which could provide pension coverage to about 600,000 workers. On the cards for close to a decade, the Department for Social Protection is currently running a public consultation on the proposal, which would see the Government contribute €1 for every €3 saved into a pension by an employee, with employers also expected to contribute. The initiative, which could see most workers automatically enrolled into a pension scheme, could be up and running by 2022.
Mr Mansergh said that “if done correctly” the scheme has the potential to significantly improve the long-run outlook for Irish retirees by reducing dependence on the State.
Sustainability
The survey, now in its tenth year, also highlights the growing tension between adequacy and sustainability in pension systems across the world.
Author of the study and senior partner at Mercer Australia, Dr David Knox said that ensuring the right balance between adequacy and sustainability was a challenge that policymakers were grappling with.
“For example, a system providing very generous benefits in the short-term is unlikely to be sustainable, whereas a system that is sustainable over many years could be providing very modest benefits. The question is – what’s an appropriate trade-off?”
Three of the top ranking countries, Denmark, Netherlands and Sweden, scored A or B grades for both adequacy and sustainability.
