State ranks last in EU survey of pensions spending

THE Government is spending less on old-age pensions than any other EU member state, despite the State’s commitment to set aside 1% of GNP, gross national product, each year for the National Pensions Reserve Fund.

A survey of spending by EU countries on pensions reveals that expenditure on pensions in Ireland is way below that of its European counterparts.

According to the report, just 3.6% of GDP, gross domestic product, in Ireland is allocated to spending on pensions compared to the EU average of 12.5%.

Italy spends almost 15% of its wealth on providing for its state pension scheme, while Austria, France, the Netherlands and Germany spend in excess of 13% of their GDP.

The findings by the EU Statistical Office, Eurostat, are issued against a background of growing concern in Ireland about the ability of the State to provide an adequate level of income for pensioners.

The issue was highlighted at a conference at the weekend at which speakers warned that almost two-thirds of all private sector workers could face poverty in retirement.

However, Finance Minister Charlie McCreevy has acknowledged that maintaining the present level of provision, which is 5% of GNP, will require 8% of GNP in 2026 and cost 12.5% of GNP in 2056.

It means that Ireland is unlikely to reach EU average levels of pensions provision for at least half a century.

The low rate of State funding for pensions is explained to some extent by the fact that Ireland has the youngest population in Europe with just over 30% of the adult population being projected to be aged 60 or over by 2005.

In contrast, almost 41% of the EU population will be aged over 60 in two years with the figure rising to almost 50% in countries such as Italy and Sweden.

Ireland is also one of only three EU countries, along with Luxembourg and the Netherlands, which has seen expenditure on old-age pensions as a percentage of GDP fall since 1990.

The fall in the amount set aside for old-age pensions by the State from 5.8% in 1991 to 3.6% in 2000 is largely explained by an increase in GDP as a result of the Celtic Tiger economy. In real terms, expenditure in pensions increased by around 11% over the same period.

However, these figures show that Ireland is still lagging behind the rest of Europe where expenditure on old-age pensions has risen by 18% on average.

Ireland also spends less than half of all pension expenditure on old-age pensions with less than 46%, compared to the EU average of over 75%.

Disability and survivors pensions account for almost 37% of all spending in the sector in Ireland more than twice the EU average.