The sustainability of Ireland’s pension system is among the worst in the world and could result in workers facing the growing prospect of poverty in retirement, a global study has found.
The 2014 Mercer Global Pension Index (MMGPI) ranked Ireland 20th of the 25 countries surveyed in terms of the sustainability of its pension system amid concerns over the country’s future ability to meet the cost of paying pensions.
The country’s overall system — taking account of adequacy, sustainability and integrity — was given a C+ grade; a score deemed “middle of the pack” which placed Ireland at 11th in the rankings.
Commenting, Aidan McLoughlin of the Irish Brokers’ Association pension committee, said: “Ireland fails in the sustainability category with a score of just 36. In simple terms, while private sector pensions are largely funded, we’ve little to support the long-term promises made by the State to its citizens— we’re totally reliant on current taxation to fund these having given away the National Pension Reserve Fund,” said Mr McLoughlin.
The report warns that the national debt, which is predicted to stand at €203bn at the end of the year, is dwarfed by the cost of state pension liabilities which are estimated at €440bn.
While the MMGPI found there is no perfect system that can be universally implemented around the world, there are a number of common features that lead to better outcomes for individuals.
Areas of reform recommended by the MMGPI include:
Increasing coverage of employees in occupational pension schemes, thereby increasing the level of contributions and assets
Introducing a minimum level of mandatory contributions into a retirement savings fund
Providing greater protection of members’ accrued benefits in the case of fraud, mismanagement or provider insolvency
Mercer’s Peter Burke said that on the back of the announcement that the pension levy is to be phased out, the entire pension system must now be simplified to encourage greater participation rates.
“The recent abolition of the pension levy is very welcome. Now we need to work on simplifying the pension system. Doing so is critical for the successful introduction of an auto-enrolment system that will allow everyone to save for their future,” said Mr Burke.
Earlier this year, Social Protection Minister Joan Burton outlined an auto-enrolment system — MySaver — for employees who are not members of a pension scheme.
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