State pension system unsustainable, report warns

Increasing retirement age and changing the way pension increases are indexed are options the Government needs to consider to avert a crisis in a State pension system that is currently unsustainable, according to a new report.

The report compiled by actuarial consultants Milliman for the Society of Actuaries in Ireland and PublicPolicy.ie said there was no easy way to improve the sustainability of the Irish pension system.

Cutting the amount of pension benefits or increasing PRSI contribution rates were among other possible approaches. But, the actuaries’ industry group said, “doing nothing is not an option”.

The cost to the exchequer of State pensions is expected to increase substantially over the lifetime of the current workforce.

However, there is no suggestion at present that PRSI rates will be increased to match that cost, or at least defray it.

The Society of Actuaries said it was unfair to ask current workers to contribute to schemes that may not deliver them any benefit in the future.

It also warned that the State pension system should not require the State to divert funds from “other critical sectors, such as health and education, so as to ensure that benefits can be maintained”.

Increasing the age of retirement should be part of the solution, according to the report’s authors, while changing the current practice of indexing pensions to national average earnings “appears the most promising option in terms of containing the projected growth in pension outgo”.

However, they warned that such a move would reduce pension adequacy over time.

Such a move, in isolation “could greatly undermine the objective of the State pension, particularly in relation to its role in limiting poverty in retirement,” the Society of Actuaries warned.