Ireland facing pension time bomb with people living longer and fewer workers to pay for them

The ESRI’s director Professor Martina Lawless is expected to tell the Budgetary Oversight Committee population ageing 'will be one of the defining economic and fiscal challenges facing Ireland over the coming decades'.

Ireland is facing an age-related time bomb with Government spending on supporting the country’s ageing population set to massively increase over the next 25 years.

Think tank the Economic and Social Research Institute (ESRI) will tell the Oireachtas on Tuesday the level of old-age dependency — a ratio of those aged over-65 compared to the working-age population — is set to nearly double by 2050 as the labour force declines and those working now pass retirement age.

That will create a domino effect, with the Government set to have to spend far more on supporting those of pension age by 2050 without seeing a similar increase in its own tax revenues as things currently stand.

The ESRI’s director Professor Martina Lawless is expected to tell the Budgetary Oversight Committee population ageing “will be one of the defining economic and fiscal challenges facing Ireland over the coming decades”.

She will say while Ireland’s population growth appears strong in comparison with other countries, “the changing age structure of the population will slow economic growth and place increasing pressure on the public finances, particularly through health spending and pensions”.

In order to alleviate those effects, the Government will need to take “early and sustained policy action” Prof Lawless will say, as “gradual adjustments are likely to be more effective and less disruptive than delayed responses”.

The policy choices in question will likely include moves to extend working lives, increasing participation in the labour market, and “sustaining inward migration”, measures which could “materially strengthen public finances”, she will say.

The issue of the pension system struggling to cope with a rapidly-ageing population is one the Government has been wrestling with for some time, with the Department of Finance recently preparing a series of discussion papers on the topic.

Last September, that department warned Ireland faced “very negative” economic consequences within the next 25 years if inward migration is not encouraged as the workforce approaches retirement.

“Migration appears to be the sole driver of labour force growth in the long run,” the department said at the time.

Meanwhile, the head of Social Justice Ireland will tell the same committee on Tuesday that increasing Ireland’s tax take per head of population to €26,866 would be necessary to shore up the public finances as the population ages, given the total tax-take here as a percentage of Gross Domestic Product (GDP) is the lowest in Europe.

“Living longer is a huge success story. Now is the time to plan for this success story and ensure we use our economic success to provide the services and infrastructure that people need now, and into the future,” John McGeady, chief executive of Social Justice Ireland, will say.