What’s the Problem with Ireland’s State Pension System?

Ireland needs €440bn to address its pension problem. Now has that got your attention? Particularly when you compare this to our National Debt figure, a not so meagre figure of €212bn (as at 17th October 2017) that gets so much attention. At that, the pension figure of €440bn was calculated almost 2 years ago, and will have only grown in the meantime…

The reason the pension figure gets so little attention is because it is tomorrow’s problem, not today’s. But we can’t escape the fact that €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. If nothing changes, this money will have to be found in the future to pay all of our old state pensions and the pensions of all our public servants.

So how have we got here?

Changing demographics is a significant cause

There are a number of demographic factors that are exacerbating the problem in Ireland. Today we have 5 workers for every pensioner. These workers pay PRSI, which goes towards the payment of the pensions mentioned above, and even at this, the full cost of those pensions is not covered. However Ireland is ageing and by 2050, there will only be 2 workers for every pensioner. Which means much less PRSI going in, and much more pensions coming out. It just doesn’t add up.

And apart from this, we’re all living longer. In fact it is anticipated that 20% of people in their 30’s today will live to see 100 years of age! So pensions will need to be paid for longer.

So what’s being done about it?

Well, not enough really… There were some attempts made; the National Pensions Reserve Fund was set up to address this issue and had built up to a healthy €22bn. But this was then emptied to help address the economic collapse.

The qualifying age for the state pension has also been pushed out to 67 from 2021 and 68 from 2028. This is definitely a step in the right direction but not enough on its own.

Unfortunately it is estimated that the state pension needs to be reduced by 35% to become sustainable. Now how does that recent increase in the budget to the old age pension add up?

 So what needs to be done?

Well if you found the above depressing, I’m afraid it gets no cheerier! But if we want a sustainable economy into the future, solutions such as the following will need to be implemented.