State pension hike and retirement age stasis threaten sustainability of pension system – report
The increase in the state pension in last week’s budget together with the decision not to raise the retirement age are impacting on the sustainability of the overall pension system here, according to an international ranking of pension regimes carried out by consultants Mercer.
The Mercer CFA Institute Global Pension Index (MCGPI) is a comprehensive study of global pension systems covering two-thirds of the world’s population.
It benchmarks retirement income systems around the world, highlighting shortcomings in each system as well as suggesting possible areas of reform that would provide more adequate and sustainable retirement benefits.
Ireland’s pension system is ranked 13th out of 43 countries in this year’s study, up one place from last year.
It puts Ireland ahead of larger European countries such as Germany (14th), Belgium (17th) and France (21st).
Iceland, the Netherlands and Denmark were ranked in the top three places respectively, with all three systems receiving an A grade.
The system in this country received a B-grade, coming in at 11th place for integrity and 7th for adequacy.
However, when it comes to sustainability, Ireland’s system is ranked in 25th place.
“This points to future challenges as the population ages, given that the ratio of workers to pensioners in Ireland is set to fall from 4.5:1 today to just 2.3:1 by 2051,” the report notes.
Three key policy areas are highlighted for impacting the sustainability score – the increase in the state retirement pension by €5 in the recent budget, the retention of the State retirement age at 66 for the foreseeable future and the delay in introducing an automatic enrolment system for pensions.
“Government policy needs to focus on ensuring the sustainability of our system and some of the key ways to do this are to continue to increase supplementary pension coverage, improve overall benefit security, and incentivise saving,” John Mercer, CEO of Mercer Ireland, said.
“While it was encouraging to see the recent report by the Pensions Commission make specific recommendations as to how the State pension could be strengthened, we would urge the government to expedite action in this area in conjunction with wider reform of the pensions system,” he added.
Margaret Franklin, President and CEO at CFA Institute, said it was more important than ever to understand how retirement benefits could be improved.
“The pandemic has exacerbated socio-economic inequality in many parts of the world. And, from a long-term investment perspective, we’re operating in an extremely challenging environment with historically low interest rates and, in some cases, negative yields clearly impacting returns,” she pointed out.
Steep pension gap along gender lines
A detailed review of the gender pension gap was conducted as part of this year’s Index.
All pension systems were found to have a marked disparity between pension provision for men and women.
The gap is defined as the difference between the average male and female pension, expressed as a percentage of the average male pension.
A higher percentage indicates greater disparity between the genders.
Ireland ranked 20th out of 34 OECD countries, with a gender pension gap of 27.9%, slightly above the OECD 34 average gap of 25.6%.
“The government needs to urgently address the relative inadequacy of retirement incomes for women as compared to men,” John Mercer said.
“There has rightly been more attention on Ireland’s gender income gap in recent months, with gender pay gap reporting now mandatory for employers, but the MCGPI report shows that the continued inequality between male and female average retirement incomes in Ireland needs to also be addressed as a matter of urgency,” he stated.