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Pensions gap to hit future retirees
Ireland faces a yawning chasm in financing its public pensions of up to 10% of the country’s economic output by 2060, according to a report from the Organisation for Economic Co-operation and Development (OECD).
By Vincent Ryan
In a review of the outlook for pensions in its 34 member countries, the OECD said workers will have to work longer before retiring and will have smaller public pensions. It described today’s retirees as living in a golden age for pensioners that may not be sustainable. “It may not feel like it, but today’s retirees are living through what might prove to have been a golden age for pensions and pensioners. Far fewer older people live in poverty than in the past: about a quarter fewer than in the mid-1980s. They also can expect to live longer. Today’s and tomorrow’s workers, in contrast, will have to work longer before retiring and have smaller public pensions,” the report said.
The OECD projected that if things don’t change in Ireland by 2060, when today’s graduates retire, the gap between the amount being paid into national pensions and paid out would be the equivalent of 10% of GDP.
“The changes are largest in Ireland, Luxembourg, Romania and Spain. In four cases, the gap between contribution revenues and expenditures in 2060 is projected to be 10% of GDP or more, with a further six countries showing a difference of between 5% and 10% of GDP,” it said.
The report notes that the economic crisis has accelerated the rate of reform in EU countries, but a lot of work remains to be done. Ireland is also in a more precarious position than other EU nations as it has raided the pension reserve fund to bail out the banks.
“In Ireland, the assets in the public pension reserve were used to recapitalise the country’s banks while further contributions to the fund have been suspended in the face of a large deficit on the government’s budget,” the report said.
The OECD recommended that private pension funds be used to fill the gap in the public pension funds.
“Even if further increases in retirement ages are implemented, private pension provision should be promoted to allow workers to draw on their savings in old age, complementing their working income and public pension benefits,” it said. “Making private pensions compulsory would be the ideal solution to eliminate the pension gap and ensure benefit adequacy.”
The report notes that Ireland has been actively discouraging people to save for their old age by taxing pensions.
“The traditional way of encouraging people to save for their old age has been tax incentives,” it noted.