Irish Examiner view: No simple answer to pensions dilemma

The demographics of the Irish population make our existing pension position unsustainable with the ratio of active workers per pensioner in the population due to fall from its existing 4.5:1 to 2:1 in 2050.

One-third of Irish workers do not have any supplementary income beyond retirement other than the State pension.

One of the consequences of the decision by major central banks to print money during the Covid-19 pandemic — quantitative easing, they like to call it — is that it has persuaded people that there is an inexhaustible supply of it.

Barely a debate takes place in the Dáil, barely an idea is tabled in the public square, or floated over the network, without a price tag attached. And yet society’s finances are finite, and the main source of them, taxes paid by workers and businesses, are under pressure from an increasing range of demands, often domestic, but many beyond our control.

Thus it is with current arguments over the future funding of pensions, an essential and emotive subject, although one which, like the welfare of an ageing population, where decisions can often be postponed and pushed tomorrow, or the next day, or next year.

The newly minted Automatic Enrolment Retirement Savings System aims to automatically enrol three-quarters of a million workers aged 23 to 60 earning more than €20,000 annually into a new agency (with the unlovely title of the Central Processing Authority) at the beginning of 2024. Employers will match employees in contribution levels with an additional top-up from the State of €1 for every €3 contributed by workers.

One-third of workers do not have any supplementary income beyond retirement other than the State pension which currently pays just over €13,000 per annum at its highest rate. The demographics of the Irish population make the existing position unsustainable with the ratio of active workers per pensioner in the population due to fall from its existing 4.5:1 to reach 2:1 in 2050.

Raise pension age

This was why the Pension Commission recommended that the pension age should increase to 67 by 2031 and then to 68 by 2039, a proposal blocked in the Oireachtas which said it must not rise beyond its current 66. This is the same as in Britain, although there are plans to raise it to 68 by 2038.

In Australia and France, it is being increased to 67 by next year. In Denmark it is 67 but, from 2030 onwards, it will rise by a maximum of one year every five years depending on increases in average lifespan.

While Siptu, Ireland’s largest trade union, has warned Fine Gael that it will be “signing its political death warrant” if the pension age is changed, there are some tough answers to find which will not be solved by polemic.

Before the pandemic and the war distorted finances the single biggest item of welfare spend was on the contributory State pension. Raising the pensionable age may, ultimately, prove to be the most pragmatic approach, ahead of increasing pay-related social insurance (PRSI) or widening the net of those who are eligible to pay it.

At the end of the First World War, the Weimar Republic was forced to issue ‘emergency money’, or ‘notgeld’. It destroyed the economy. Ireland, no less than any other Western democracy, faces a decade of historic challenges in the management of its finances. Citizens and voters have to decide whether they want a bigger state, taking and spending more of their money, or whether expectations and entitlements have to be tempered.