At almost €13,000, how generous is the Irish State pension?

It’s currently the subject of a review (yes, yet another one), as the Government seeks to assess at what age people should be entitled to receive the State pension.

In anticipation of the outcome this autumn, we take a look at how the Irish State pension, as it stands, compares with other regimes around the world, taking a look at both the generosity of payments, as well as the age at which you get access.

How does Ireland compare?

At a maximum weekly rate of €248.30, when taken on a euro and cent basis the State pension appears to compare well with similar payments in other countries, although there have been calls to increase it. Last month, Alone, an organisation supporting older people, called for a pension increase due to the number of older people living in poverty, arguing that it should be benchmarked at €300.73 a week.

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How does it compare right now?

In the UK, the maximum rate is 15 per cent less at £179.60 (€210.90), while in the Netherlands, while the maximum individual rate is 17 per cent greater, at €297.47, the maximum a couple will be entitled to is €406, or about €90 a week (18 per cent less) than in Ireland.

In Denmark, the basic amount is 1,500kr a week (€201.70), but this can rise to 3,188kr (€428.68) based on a means test, so potentially about 42 per cent more than the payout in Ireland.

However, it’s difficult to compare pensions on a like-for-like basis looking at the euro sum alone. Comparing state pensions across the world is a difficult task, as a key factor in how much you get out at the end may depend on how much you’ve put in along the way, while different countries have different entitlement regimes. And there is also the cost of living to consider.

It’s also not a figure compiled by a data source such as Eurostat. A better approach then – albeit still not perfect – may be to consider to what extent the state pension provides for an adequate income in retirement. And here, the Irish system suddenly does not look as favourable.

To consider this, we can look at pension replacement rates. This measure expresses a person’s pension income as a percentage of previous earnings from their work.

According to the latest Pensions at a Glance report from the OECD, the net pension replacement rate for a worker on the average wage in the EU28 is 63.5 per cent, falling to 58.6 per cent for the OECD average. This indicates that a worker on the average wage in the European Union will get 63.5 per cent, or almost two thirds, of the income they used to earn when working from their state pension once they retire.

In Ireland, however, the replacement rate is far lower, at just 35.9 per cent. While it should be noted that the State has the second highest minimum wage in the EU, which may have an impact on this figure, the country with the top minimum wage, Luxembourg, has a replacement rate of 90.1 per cent.

This means that out of the 38 OECD countries, Ireland has the fifth lowest replacement rate.

Other countries that offer poor replacement rates in retirement include the UK, where the net rate is one of the lowest in the OECD, at just 28.4 per cent, Poland (35.1 per cent) and Japan (36.8 per cent).

From a European perspective, the most generous pension systems are in Italy (91.8 per cent), Luxembourg (90.1 per cent), Austria (89.9 per cent) and Portugal (89.6 per cent).

France also offers significantly better coverage than Ireland, at 71.4 per cent, but Germany lags behind, at 51.9 per cent, with the United States offering a replacement rate of 49.4 cent.

When it comes to workers on half the average wage, Ireland does perform better, offering a replacement income of 60.5 per cent in retirement. However, so too do all the other countries.

Denmark actually offers such workers a better income in retirement than it does when working, with a replacement rate of 104.5 per cent for workers on half the average wage, while Luxembourg has a rate of 99 per cent and Italy of 92 per cent.

Retirement age

It has been the subject of much attention in Ireland that there still remains some uncertainty as to when people will start receiving the State pension. Currently, subject to a review by the Pensions Commission, which has been delayed until after the summer, the review will assess whether or not the Government will go ahead with its plans to increase the age to 67, as should have happened back in January, while a further increase to 68 from January 1st, 2028 had also been planned.

As it stands, Ireland is largely in line with overall European trends. While retirement ages range from as low as 60 to as high as 67, 66 is the most common age for retirement across the EU, as well as Australia (66), and the US (66 years and two months).

Some countries have a range of retirement ages. In Finland, you can take out your pension at some point between the ages of 63 and nine months and 68.

In others, women can access their State pension at an earlier age than men. In Austria, the age is just 60 for women, but 65 for men, while Poland has a similar regime.

A common thread among all countries is that the qualification age is set to rise between now and about 2030, while gender-based discrepancies that currently exist will be removed.

In Austria, a flat pension age of 65 is due to be introduced in 2033, thereby hiking up the retirement age for women by five years.

In some countries, including Finland, Denmark, Italy and the Netherlands, the retirement age won’t be a specific number, but rather will be related to life expectancy. In Finland, it will increase to 65-plus, while in Italy it will increase to 67-plus in 2022. Others will apply a more mechanical increase; in the UK, it will rise to 68 between 2037 and 2039.

Best country?

While change is ahead, when looked at from the perspective of today, countries such as Luxembourg, with a retirement age of 65 and replacement rate of 90.1 per cent, or Belgium, with a retirement age of 65 and replacement rate of 70.7 per cent, may appear to offer better rewards for retirees than Ireland.

The UK offers one of the poorest returns across the OECD, based on a pension age of 66 (which is set to increase further), and a replacement rate of just 28.4 per cent.

However, it should be noted that voluntary pension contributions, such as occupational pension schemes, as well auto-enrolment type schemes such as that in the UK, boost replacement rates.

Generosity of pension schemes are also a function of how much goes into them. After all, how much you put into a pension through social security contributions over your working life may also determine how much you will be entitled to in retirement.

Another way of looking at it is to look at overall state pension expenditure as a percentage of gross domestic product (GDP). According to OECD figures, this puts Ireland towards the bottom of the table, contributing just 3.4 per cent of GDP compared with an OECD average of 6.5 per cent; while countries such as Greece (13 per cent), France (11.9 per cent) and Italy (11.5 per cent) contribute much more – hence, perhaps, the greater replacement rates.