Irish pensions need urgent reform, industry specialist says
Ratio of workers to retirees set to fall sharply over next three decades
Ireland’s overall pension system stands in 11th place out of 37 countries assessed for the Mercer index.
Irish pensions, which lag in the international rankings when it comes to sustainability, need urgent reform as the ratio of workers to retirees is set to fall dramatically over the next three decades, according to human resources consultancy Mercer.
While the 2019 Melbourne Mercer Global Pension Index (MMGPI) , published on Monday, has found that Ireland stands in first place for adequacy of expected pension benefits, given the “comparatively generous” State pension, it only ranks 27th when it comes to sustainability.
The weak sustainability reading reflects the low level of occupational pension coverage – of below 50 per cent – in Ireland and that an ageing population will see the ratio of workers to retirees falling from 5:1 today to 2:1 by 2050, leaving fewer people to fund State benefits, according to Mercer.
Ireland’s overall pension system stands in 11th place out of 37 countries assessed for the index.
“Ireland’s relatively high ranking masks an underlying imbalance. It’s clear that our comparatively generous State pension will come under increased strain as the population continues to age rapidly between now and 2050,” said Caitriona MacGuinness, head of defined contribution pensions at Mercer in Ireland.
“The Government has committed to the introduction of an auto-enrolment system by 2022 which has the potential to significantly alleviate this strain. However, progress to date on rolling this out has been limited. Without auto-enrolment it is clear that future retirees will continue to depend on an increasingly unsustainable state pension.”
Ms MacGuinness said that the 2022 auto-enrolment date, while a “noble aspiration”, is “challenging”.
Under the proposals, first outlined last year, employees would initially contribute 1 per cent of salary to the scheme, matched by employers. This would escalate by 1 percentage point a year for both parties for the first six years, while the State would contribute a further 2 per cent. By 2028, the total contribution for each member would be 12 per cent of salary a year.
The Mercer report says that Ireland needs not only to increase coverage of employees in occupational pension schemes, but introduce a minimum level of mandatory savings to retirement accounts. The Government also needs to reduce its debt to help make State benefits more sustainable.
The Netherlands had the highest index value across countries surveyed, and has consistently held first or second position for 10 out of the past 11 MMGPI reports. Thailand had the lowest ranking.