Leo Varadkar seeks to tie state pension to rate of inflation

The state pension could be tied to the rate of inflation and the cost of living if Social Protection Minister Leo Varadkar pushes through plans for a universal retirement saving scheme.

The ageing population is also “endangering the retirement income” of those who rely on the state pension, and pension reform will be needed, the minister said.

The universal scheme would see all employees automatically enrolled into a pension scheme, and “individuals will have to make greater provision for their own retirement”, according to Mr Varadkar.

The current pension system is “unsustainable”, he said.

The number of workers to each pensioner in Ireland is set to drop from five to two by 2050. The potential future crisis has led to the minister and the Pensions Authority launching a consolation process on pension reform.

The problem identified by the Pensions Authority is that half of Ireland’s workforce is not signed up to any private pension scheme and relies solely on the state pension when on retirement.

But as people are living longer, increasing pressure will be put on the state pension.

The reforms will be aimed at making every worker pay into a pension scheme automatically, to supplement the state pension they receive upon retirement.

The retirement age will not be raised from the age of 68 Mr Varadkar confirmed.

If pension reform is not undertaken, Mr Varadkar warned people retiring solely on the state pension would suffer a significant decrease in living standards.

Workers signed up to the new pension scheme would “hopefully forgo part of pay increases in the future, in return for something being paid into their pension” by employers, he suggested.

“Maybe instead of getting a 3% or 4% pay rise every year you get 2%, and 1% went into your pension instead.”

The Government will be committing to rolling out an information campaign about “the benefits of paying into a pension” before any overhaul of the pension scheme said Mr Varadkar.

“Just starting to pay in a few years earlier, even a relatively small amount really makes a big difference later in life.

“We know it can be difficult for people, particularly when they are younger and faced with mortgage costs and childcare costs, but it does make a difference.”

David Begg, chair of the Pensions Authority, also said the current system of private pension schemes in Ireland is too complex and costly.

The reason is that there is “something like 140,000 private pension schemes, controlled by 200,000 trustees,” he said. “Almost half of all pension schemes in Europe are in Ireland,” he added.