The slow-motion explosion of the pension time bomb

ANALYSIS:Rising life expectancy means the pension problem is becoming too urgent to ignore

LIFE IS precious. It is wonderful that we are enjoying more of it. Today, an Irish woman who makes it to the traditional retirement age of 65 can, on average, look forward to 21 more years of life. Her male counterpart, statisticians say, has more than 18 years of living to do before he breathes his last.

The stretching of lifespans, owing to a range of factors – including better healthcare, drugs and diet – is an overwhelmingly positive development.

But because we are delaying departure to the hereafter does not mean that money will fall from the heavens to pay for longer lives of leisure on high-incomes. There is no such thing as a free lunch.

Societies and their political leaders in the many countries around the world facing population ageing are not doing enough to face up to the one negative consequence of greatly extended lifespans – the pensions time bomb.

The scale of the problem is huge. One part of the problem is considered in a study that has been sitting on the desk of Minister for Social Protection Joan Burton since June. It will be published any day now.

For context, the Irish State has three broad pension commitments: those to retired public servants; those to workers who pay for a pension with their social insurance contributions; and those to pretty much everyone else via the basic (ie non-contributory) old-age pension.

The soon-to-published report looks at the second of these three State pension schemes. It does not make for reassuring reading, particularly for those who intend to depend solely on the State in their autumn years.

The system is, in short, entirely unsustainable as it currently exists. The Social Insurance Fund is supposed to be able to pay for contributory State pensions (and many other benefits) using the PRSI contributions that go into it. But that has not happened since the recession began. There is now a €1.5 billion annual shortfall.

And the future looks much worse, almost entirely because the pensions time bomb is exploding in slow motion. Even taking account of the already-legislated- for increase in the age of retirement – from 65 now to 68 in 2028 – an ocean of ever-deepening red ink stretches out as far as the eye can see.

In any context, there are three ways to skin the pensions deficit cat – push up the retirement age, make higher contributions while working and/or have smaller pension income once retired. While all three will almost certainly happen, the easiest option, politically at least, is to slow the rate of pension increases.