The €5 hike in the State pension in last week’s budget, along with delays in increasing retirement age and introducing automatic enrolment into savings plans, all threaten the sustainability of the pensions system over the long term, according to a new study.
The Mercer study points to considerable future challenges as the population ages due to the topping up of what is described as a “generous” pensions system, and a failure to address core issues.
Also adding to the problem is a need to “urgently address” the inadequacy of retirement incomes for women, which lag those of men.
Overall, the Republic of Ireland’s pension system is ranked 13th out of 43 economies in the latest ranking. While the State has risen one place in the rankings versus the prior year, this masks a poor performance in terms of sustainability, for which the State comes in 25th place, compared to 7th for pension adequacy and 11th for integrity.
Income
The State’s retirement income system comprises a flat-rate basic social security scheme and a means-tested benefit for those without sufficient social insurance contributions.
Voluntary occupational pension schemes and personal pension schemes provide supplementary income in retirement but, according to the Central Statistics Office, these currently only cover about 65 per cent of the working population.
The Mercer study suggests the value of the pensions system could be improved by continuing to increase coverage of employees in occupational pension schemes, introducing auto-enrolment systems, and increasing the labour force participation rate at older ages.
"Government policy needs to focus on ensuring the sustainability of our system and some of the key ways to do this are to continue to increase supplementary pension coverage, improve overall benefit security, and incentivise saving," said John Mercer, chief executive of Mercer Ireland
"While it was encouraging to see the recent report by the Pensions Commission make specific recommendations as to how the State pension could be strengthened, we would urge the Government to expedite action in this area in conjunction with wider reform of the pensions system," he added.
