Failure to tackle pensions timebomb will have stark consequences
Analysis: Cost of ignoring ageing population will weigh heavier than Covid-19 crisis
Not even the impending financial and environmental disaster that is climate change can deflect from an even greater threat – paying for Ireland’s ageing population.
Ireland has one of the fastest-ageing populations in the EU. In just 30 years, the number of those whom the State’s working population will have to support will more than double.
And paying for it will consume an ever-larger portion of our taxes – leaving less for other areas such as childcare, education and welfare payments for younger vulnerable members of the population.
That is the stark message of the Irish Fiscal Advisory Council’s (Ifac) first Long-Term Sustainability Report, which assesses the longer-term budgetary challenges and risks facing the State.
The budgetary watchdog is doing precisely what it was set up to do – providing early warning on the eventual cost of current policy choices and highlighting fiscal issues that loom on the horizon.
And one issue dominates. Not even the impending financial and environmental disaster that is climate change can deflect Ifac from an even greater threat – paying for Ireland’s ageing population.
The figures in the report pour cold water on the populist groundswell ahead of the recent general election that saw parties trying to outdo each other in blocking any further rise in the age at which the State pension kicks in, or even promising to turn the clock back.
The pensions timebomb was dismissed as a “myth” by People Before Profit TD Bríd Smith, while Sinn Féin leader Mary Lou McDonald said “the demographics will look after themselves”. Fianna Fáil tied itself in knots trying not to be outflanked while Labour and Fine Gael also scrambled to respond.
All were catering to the “mé féin” vote: pay me now and to hell with future generations.
All government decisions have cost implications. The Ifac report attempts to set down what those might be. Even on current policies – and that does not assume the pension age standing still, never mind reverting back to 65 – the council is clear that public spending will inexorably start to rise above the amount of money that State is bringing in to the exchequer.
Combined spending on pensions and healthcare is projected to increase from 13.3 per cent of modified gross national income (GNI*) – considered the most accurate available measure of the size of the economy – in 2019 to almost 25 per cent in 2050.
While those over the age of 65 currently account for just 22 per cent of the adult population (those between the ages of 15 and 64) today, that figure will rise to 47 per cent by 2050. By the mid-2030s, just 15 years hence, Ifac says we will hit the EU average of old-age dependency.
And as budget deficits grow, government debt will remain stubbornly among the highest in the EU.
It is against this background that the Government will have to consider the promised review on the State pension age. It appears most unlikely that anything but the most partisan of reports will advise something other than a gradual rise in the State pension age in line with greater life expectancy.
The dilemma for the Government in that event is how they put the genie back in the bottle and return to a policy that, until now, had broad political support.
As Ifac makes clear, the cost of failing to do so will weigh heavily on us for far longer than the current Covid-19 crisis.