Pension reforms will not solve timebomb, report finds
'Total spending on State pensions increased by 50% from 2012 to 2022 driven, primarily, by a 34.6% increase in recipients in the same period,' Parliamentary Budget Office said.
The Government’s proposed reforms of pensions in Ireland “may not sufficiently address” the pressures that will be heaped on the system by our ageing population, a new report has claimed.
“As a result of Ireland’s changing demographics and labour force make-up, the current system of funding State pensions is not sustainable and will come under intense financial stress in the coming decades,” the report from the independent Parliamentary Budget Office said.
Often referred to as Ireland’s pensions “timebomb”, the PBO said the pressure on the public finances will heighten over the coming years as the population ages and more people leave the workforce and become eligible for the State pension.
It said: “Total spending on State pensions increased by 50% from 2012 to 2022 driven, primarily, by a 34.6% increase in recipients in the same period.
“Irelands population is ageing rapidly and living longer. The old age dependency ratio in 2023 is one retiree to four working age people. By 2050, this is forecast to be closer to 1:2.”
The PBO said the Government’s decision that there would be no change to the pension age of 66 came in spite of the recommendation by the Pensions Commission.
It said the Future Ireland Fund, established in Budget 2024, is aimed at financing elements of our future through some windfall tax receipts, Government investment and “seed funding” from the National Reserve Fund.
While the Government believes this fund could reach €100bn by 2035, this does not take account of any possible economic shocks or a fall in windfall corporate taxes.
It also said if using windfall tax receipts to shore up the State pension fund, “there is no guarantee that these will last forever” and it would create additional problems should these “suddenly dry up”.
“Dependent on continued economic growth and strong corporation tax receipts, the fund will only partially address future shortfalls in pensions,” it added.
Earlier this year, Finance Minister Michael McGrath told an Oireachtas committee that the cost of providing existing levels of service to an ageing population will be €7-€8bn higher than at the beginning of the decade.
“However, the reality of the demographic pressures we will face will become more acute as time goes on,” he said. “That is why we have to make provision for the future.
“The Government has been very open and upfront with people that the price for keeping the pension age at 66 involves us paying more in over time. That will mean both employers and employees paying more PRSI over time.”
Increases to PRSI had been flagged ahead of October’s budget as a way of ensuring the pension age could be kept at 66 and to allow for the rollout of pay-related benefits for people who are made redundant.
The increases will see the average employee pay an extra €46 a year from next October alone.
During a heated Dáil debate last week, Sinn Féin’s Pearse Doherty said his party would give people the right to retire at the age of 65 if they choose to.
Taoiseach Leo Varadkar retorted that people are living longer and are retired for 20-30 years. “That is great, but it has to be paid for,” he said.
