Remedying the pension deficit will be costly

IN addition to the banking crisis, the Government also faces a series of crises on pensions. There are at least three separate but related crises around the issue of pensions.

Firstly, we have a situation where the state is paying pensions, both for public servants and for others, but of current income. Secondly, the vast majority of defined benefit schemes in commercial organisations are underwater. The third is that the experience of the last number of years in relation to investments cannot but have had a chilling effect upon people’s willingness to engage with financial services, including pensions.

At present, Ireland is in the lucky position that we have a young population. Approximately 17% of the population is in the elderly category. CSO projections suggest this could rise to 25% by 2021 and to as high as 46% in 2041. All of these persons will be dependent, in theory, on a pension. For many of them, if the past is any guide to go by, this will primarily be the state-funded old-age pension.