Irish pension system slips in global rating table
State ranks 12th of 30 countries in Melbourne Mercer Global Pensions Index
The Government intends to introduce a universal savings scheme to increase pension coverage among private sector workers. Photograph: Alan Betson
Doubts over the sustainability of the Irish pension system has dragged it down in an annual global study.
The State ranks 12th of 30 countries assessed this year in the Melbourne Mercer Global Pensions Index, and was awarded an overall B rating. The State fell two places in the rankings despite increasing the overall score for the strength of the pension system. Only 27 countries were ranked in 2016.
However, it secures only a D rating in terms of the sustainability of the current scheme.
The report describes the Irish system, and others ranked B, as a system that “has a sound structure, with many good features, but has some areas for improvement that differentiates it from an A-grade system”.
The report’s authors suggest that Ireland could increase its score by:
- increasing the coverage of workers in private occupational schemes;
- introducing a minimum level of mandatory contributions into a dedicated retirement savings fund;
- providing greater protection for benefits built up in private occupational schemes in the event of employers becoming insolvent;
- reducing Irish Government debt as a percentage of gross domestic product.
The report notes that Ireland’s score rose from 62.0 to 65.8 last year but says that this is due to the fact that Ireland scored a perfect 10 in a new question introduced this year under the sustainability heading on economic growth over the past three years and the prospects for growth over the next three years.
Ireland did score strongly both for the adequacy of the expected benefits and its governance standards.
Commenting on the report, Peter Burke, senior defined contribution consultant at Mercer in Ireland, said: “The results from the 2017 Melbourne Mercer Global Pension Index indicate that the time is right to develop a clear roadmap and timeline for the introduction of an auto-enrolment pension system to cover all employees.
“As we are living longer and spending more time in retirement, this will help to ensure that the Irish pensions system can support the population in achieving adequately funded retirements.”
The Government has said it intends to introduce a universal savings scheme to increase pension coverage among private sector workers. Taoiseach Leo Varadkar has noted that a five-year roadmap for pension reform is expected before the end of the year with first payments being made to these new individually held funds in early 2021.
Successive governments have considered reform of the Irish pension sector and long-fingered actual change over many years..
“Statistics indicate that less than half of Irish workers are currently saving in occupational pension schemes,” Mr Burke said. “In light of the pressures that this puts on the State pension and the €560 billion pension savings gap that this country faces, it is imperative that the 2021 target for increasing coverage and levels of pension savings is met.”
The global pension index, which covers 60 per cent of the world’s population, urges countries with unsustainable pension systems to take action now, rather than risk the need to take even more drastic action in the future.