Ireland’s pension system is among the least sustainable of any developed country as a result of our heavy reliance on the state pension, a report has found.
The Melbourne Mercer Global Pension Index, which looked at 25 pension systems across the globe, ranked Ireland’s system 11th overall, but 20th in terms of sustainability, while Denmark retained top spot for the fourth consecutive year.
The key issue is Irish people’s over-reliance on the state pension, which is provided on a pay-as-you-go basis.
The result is that funding is not set aside in advance and benefits are paid from PRSI contributions from the current workforce.
Simplified regulation is needed to pave the way for greater take-up of private pensions, according to Mairéad O’Mahony of Mercer Ireland.
“This report highlights the importance of measures that aim to improve the sustainability of our pension system, whether that means adjusting the state pension age, increasing participation in pension schemes amongst our workforce, or funding additional contributions for future retirement income,” said Ms O’Mahony.
“An important step to achieving increased participation will be to simplify the regulation currently surrounding the pension industry.
"This will pave the way for implementing a clear, understandable approach to auto-enrolment [where employers are legally bound to enrol staff in a pension scheme]. Doing so will improve participation rates and ultimately enhance people’s financial security in retirement.
"The introduction of an auto-enrolment system would serve to increase participation in private pension saving and would be a strong step in the right direction.”
Increasing the number of workers with private pensions has been a Government intention for some time, with Tánaiste and Social Protection Minister Joan Burton indicating her preference for an auto-enrolment scheme.
Another concern is the lack of scrutiny by people with a pension, with better education seen as a key factor in improving the situation.
A recent Mercer/Red C survey found that one in four pension scheme members do not review their pension. Some 50% of those surveyed said they would take a more hands-on approach to managing their pension if they had a better understanding of how pensions work.
This finding was even more pronounced among younger workers, with 66% of those aged under 34 identifying the importance of better education.
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