Ireland has ranked 10th out of 27 countries in the latest Melbourne Mercer Global Pensions Index (MMGPI) and was awarded an overall C+ rating for the third year running. In terms of sustainability, Ireland ranked just 20th, receiving the lowest available grade – an E.
With an ageing population, low levels of occupational pension coverage and a heavy reliance on the State pension, all are key factors in dragging down the international standing of Ireland’s pension system.
The report suggests that Ireland could make its pension system more sustainable by introducing a minimum level of mandatory contributions to a retirement savings fund – in essence auto-enrolment.
It also recommends the Government provide greater protection for benefits already built up by pension scheme members in the event of their employer going out of business and advises that cutting government debt as a percentage of GDP would provide room to breathe on the funding of State pensions. It also urges action to extend coverage and therefore reduce reliance on a vulnerable State pension system. Part of that, it argues, involves simplifying the current complex system so that people find it easier to understand the whole area of pension savings.
Commenting on the report Aisling Kelly a consultant at Mercer Ireland said: “Receiving an E grade for the sustainability of our pension system should be ringing alarm bells in Government.” One of the concerns is that with the State pension funded on a pay-as-you-go basis, changing demographics will threaten its viability. By 2055, it is estimated that just two people will be working for every person in retirement, compared to about five today.
As of now, according to CSO data, fewer than 47 per cent of workers are saving in occupational pension schemes; the figure is lower again when just the private sector is considered. Unless more is done both to improve this level of participation and to increase the overall levels of pension savings, Mercer warns, a large proportion of the population may face poverty in their retirement.
Minister for Social Protection, Leo Varadkar, previously indicated very strong support for the introduction of a universal savings scheme aimed at increasing pension coverage and the overall level of pension savings. While he has described pensions as being an area of focus for next year, he has also indicated that a universal savings scheme could take some time to deliver.
Denmark maintains top position for a fifth year with an A grade, followed by the Netherlands. “We are living longer and spending more time in retirement, so we need to ensure that the Irish pensions system can support the population in achieving adequately funded retirements,” Ms Kelly added. “Definitive action is needed now to improve Ireland’s sustainability rating and improve our position in the index.”