Will our State Pension system be there for us?
It was reported back in 2014 that Ireland has a hidden pension liability of €440bn1. A pretty significant figure you might agree! Particularly when you compare this to our National Debt, which is “only” €221bn (as at 29th May 2019)
This raises real questions around the viability of the State Pension system.
A possible reason the pension figure gets so little attention is because it is tomorrow’s problem, not today’s. €440bn is the “hidden” state liability for public servant pensions and the shortfall in the Social Insurance Fund, which is used to pay old age pensions. There is no pot of money set aside; instead it is likely that this will paid from future taxation receipts.
Changing demographics is an issue
Today we have five workers for every pensioner. These workers pay PRSI, which goes towards the payment of the pensions mentioned above. However, Ireland is ageing and by 2050, there will only be two Irish workers for every pensioner.
This means much less PRSI going in, and more pensions coming out3
Apart from this, we’re all living longer. Once you make it to 66 years old if you are male, you have a 17 year life expectancy and if female a 20 year life expectancy. So pensions will need to be paid for longer4.
So what needs to be done
If we want a sustainable State Pension system, the likes of the following need to be considered
- By 2021, the qualifying age for the State Pension will be 67yrs and by 2028 it will be 68yrs.This is definitely a step in the right direction but not enough on its own.
- Currently the State Pension (Contributory) for a single person is €248.30 a week, which adds up to a grand total of €12,911.60 a year5.Benefits tend to increase as pressure is applied coming up to the budget announcement each year. For a sustainable system, it is possible that benefit increases will need to be resisted and possibly replaced by benefit reductions. Now that’s a tough political call!
- We will all need to save more for retirement. If the State Pension decreases in the future, it will fall on each of us individually to make up the shortfall, if we want to avoid poverty in retirement by only relying on State Pension benefits.
- Employers will need to play their part in helping to address the problem. Some form of Auto-Enrolment in a pension scheme, where both the employer and the employee pays is finally on the horizon. Yes, people may be able to opt out in the future. However the default position should be that every worker is automatically included in a pension scheme.
- The progression from work to retirement will need to change. The days of retiring on your 65th birthday may be gone. Instead we will see people easing into retirement over a period of time. People in their 60’s and their 70’s will continue to work, albeit potentially working reduced hours. So careers will change as people work for longer and also work differently into the future.
Ireland has a significant State Pension challenge. Hard choices need to be made to ensure that the State Pension is there for all of us in the future.
We need to take reasonability for our own retirement. We need put plans in place as early as possible and start saving for the day we longer are able too or maybe wish stop work. Let’s not wait and see whether the state will provide for us.
If you have questions either on your existing arrangements or just a where to start.
3Source Finfacts 2016
4Source: EurOhex 2018 - Ireland Country Report
5Source www.welfare.ie 2019.