An ageing population, low levels of occupational pension coverage and a heavy reliance on the State pension are dragging down the international standing of Ireland's pension system.

Ireland ranks 10th out of 27 countries in this year's Melbourne Mercer Global Pensions Index. However, its overall score is down on last year when it ranked 11th. In terms of sustainability, Ireland ranked just 20th, receiving the lowest available grade – an E.

The report suggests that Ireland could make its pension system more sustainable by introducing a minimum level of mandatory contributions to a retirement savings fund – in essence auto-enrolment.

It also suggests the Government should provide greater protection for benefits already built up by pension scheme members in the event of their employer going out of business and advises that cutting government debt as a percentage of GDP would provide room to breathe on the funding of State pensions. It also urges action to extend coverage and therefore reduce reliance on a vulnerable State pension system. Part of that, it argues, involves simplifying the current complex system so that people find it easier to understand the whole area of pension savings.

Aisling Kelly, a consultant at Mercer in Ireland, said: "Receiving an E grade for the sustainability of our pension system should be ringing alarm bells in Government." One of the concerns is that with the State pension funded on a pay-as-you-go basis, changing demographics will threaten its viability. By 2055, it is estimated that just two people will be working for every person in retirement, compared to about five today.

As of now, according to CSO data, fewer than 47 per cent of workers are saving in occupational pension schemes; the figure is lower again when just the private sector is considered. Unless more is done both to improve this level of participation and to increase the overall levels of pension savings, Mercer warns, a large proportion of the population may face poverty in their retirement.

“The Government must act now to protect today’s workers from the threat of pensioner poverty,” said Ms Kelly. “In light of the pressures on the State pension, it is imperative that the Government prioritise the development of a clear roadmap with timelines, targets and deadlines for increasing coverage and levels of pension savings across all employees.

Ireland fared well in terms of adequacy – where it was the highest scoring of the 27 countries surveyed – and integrity of its pension arrangements and regulation. It is the third year they have been included in the annual study. The study is the world’s most comprehensive comparison of global pension systems and covered close to 60 per cent of the world’s population this year.

Denmark maintains top position for a fifth year with an A grade, followed by the Netherlands. “We are living longer and spending more time in retirement, so we need to ensure that the Irish pensions system can support the population in achieving adequately funded retirements,” Ms Kelly added. “Definitive action is needed now to improve Ireland’s sustainability rating and improve our position in the index.”