Defusing the pension ‘timebomb’
As Ireland’s population continues to age rapidly, even plans to push out the pension age do not appear to be sufficient to defuse the threat of large deficits in the Social Insurance Fund.
The National Risk Assessment 2019 painted a bleak picture of the sustainability of Ireland’s pension policy amidst an ageing population.
The Government report has warned about an imminent pension time bomb as the number of people entitled to the State pension, the single largest block of social welfare expenditure, is set to double in the next 36 years.
As Ireland’s population ages, financing increasing pension spending will fall to a diminishing share of the population. Projections indicate that the ratio of people of working age to those over the State pension age will decrease from the current rate 4.9:1 to 2.3:1 over the next four decades.
The result is that the Social Insurance Fund is expected to accumulate a potential deficit of up to €335 billion over the next 50 years.
The Government’s 2018 plan for pension reform has implemented a push out of the pension age to 68 by 2028, a gradual increase from 65 in 2010. However, even factoring this in, the report estimates that more than 1.4 million people will be eligible to claim a State pension by 2055.
Age alone is not the only identifiable cause of concern in regards to the pension challenge and the impact it might have on society. The Irish population’s dependence on State contributions in their retirement can be highlighted by the fact that only 35 per cent of the private sector-employed population are covered by a supplementary pension.
At the same time, workplaces do not appear to be adopting adequate age friendly approaches to encourage older people to continue participating in the workforce. Despite increasing awareness around added value that could be garnered from tapping into an under-utilised cohort of the workforce, the employment rate for those 65 and over remained static across 2014–16, even as the employment rate for those aged 50–64 increased.
It is widely accepted that an ageing population will result in increased pressure on the health system and subsequently, health expenditure. The European Commission’s 2018 Ageing Report predicts long-term care expenditure to increase by 1.9 per cent of GDP between 2016 and 2070 and a 1 per cent GDP increase for healthcare spending.
The State’s Roadmap to Pension Reform 2018–2023 acknowledges the need to overhaul Ireland’s approach to providing for pension income in retirement and to build in sustainability for the future. However, planned implementation of measures have already raised concerns and serve to highlight challenges for the future.
The planned increase in the State pension age from 66 to 67 in 2021 has drawn criticism in the level of preparedness of those affected. The Irish Association of Pension Funds (IAPF) believe that those over 65 will be forced to seek support through the jobseekers’ allowance.
Auto-enrolment is set to be enacted from 2022, in the hope that this will help people supplement the State pension. The scheme would auto-enrol employees aged between 23 and 60 (earning at least €20,000 annually) if they are not already in an equivalent employer’s scheme and those outside of the age bracket will be able to opt in. However, the scheme was originally envisaged to be finalised by 2019.
A sticking point has been an anomaly around tax rates. Ireland’s flat rate of 25 per cent tax relief on pension contributions would benefit those paying 20 per cent income tax, however, not those paying 40 per cent.
The issue of the pension timebomb was prominent in February’s election, with parties promising alternatives to the phased increase in the pension age introduced in 2014 to reduce the cost of the State’s pension bill.
Fine Gael
Proposed pension age: 66
(rising to 67 in 2021)
Policy:
The party guarantees a rise in the annual pension by at least €25 a week over the next five years. It plans to introduce the total contributions approach for contributory state pensions away from the yearly average system. Also, it plans to introduce a new State Transition Pension for those retiring at 66 and a new State Pathway Pension for those retiring at 65, eliminating the Jobseekers criteria. The party also outline their introduction of an auto-enrolment system.
Fianna Fáil
Proposed pension age: 66 + interim measures
Policy:
Fianna Fáil plans to increase the pension by €25 a week over five years and establish a commission to examine the State pension age, deferring any increase until completion. The party propose to pay a transition pension in the interim for 65 and 66-year olds. It pledges to expand housing adaptation grants, home help hours and homecare packages. The party also vows to protect the Free Travel Scheme if in government.
Sinn Féin
Proposed pension age: 65
Policy:
The party pledge to stop the pension age increase to 67, planned for 2021, and return it to 65 at a cost of €368 million per year. Sinn Fein also said it would prohibit mandatory retirement, ensuring that those who want to continue working can do so. The party pledged to protect the Free Travel Pass and increase the pension rate by €20 over five years, which it costs at almost €700 million.
