A global index says Ireland's pension system is good, but not sustainable

THE IRISH PENSION system was rated just above average by a global index, but scored badly in terms of sustainability.

According to the latest ‘Melbourne Mercer Global Pension Index’, Ireland received a C+ rating for the third year in a row, which means its system “has some good features, but also has major risks or shortcomings that should be addressed”.

The country ranked at number 10 out of 27 national systems studied by the Victoria state-backed index.

However, it slipped to 20th position in terms of sustainability, for which it was given an E rating, the lowest score on the index grading system.

The sustainability score is calculated by looking at overall coverage, contributions, government debt and demography in a country.

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Ireland’s ageing population, low levels of occupational pension coverage and a heavy reliance on the state pension were key factors that influenced its poor sustainability score.

The index made three recommendations to improve Ireland’s pensions system:

• Develop a timeline for the introduction of an auto-enrolment pension system to cover all employees
• Agree clear targets and deadlines for increasing coverage and levels of pension savings
• Simplify the current complex system to ensure that pension savings are easy to understand

Commenting on the report Aisling Kelly, a consultant at Mercer in Ireland, said: “Definitive action is needed now to improve Ireland’s sustainability rating and improve our position in the index. Receiving an E grade for the sustainability of our pension system should be ringing alarm bells in government.”

Universal system

Minister for Social Protection Leo Varadkar previously said that unless the overall pension system is reformed, “its overall long-term adequacy and sustainability will be compromised”.

He said he supported the development of a universal retirement savings system for people without supplementary pension provisions.

According to the Mercer index, the Irish pension system faces key challenges as the ratio of workers to pensioners continues to fall.

“By 2055, it is estimated there will be just two workers for every retiree compared to five today,” is said.

Minister for Social Protection Leo Varadkar

“Given that Ireland’s state pension is provided on a ‘pay-as-you go’ basis, with benefits paid from contributions made by the current workforce, it is clear that steps to reduce reliance on the state pension are required.”

It noted that the future cost of providing public sector and pensions is estimated to be €440 billion.

CSO figures indicated that less than half of Irish workers are contributing to occupational pension schemes.

“Unless more is done both to improve this level of participation and to increase the overall levels of pension savings, a large proportion of our population may face poverty in their retirement,” the report warned.