Warning 'rapidly' ageing population will put increased pressure on State pension

Warning 'Rapidly' Ageing Population Will Put Increased Pressure On State Pension
The Irish Fiscal Advisory Council has advised shifting to a system like Canada's to avoid the need for larger PRSI contributions in the future. Photo: PA Images
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Muireann Duffy

Ireland's rapidly ageing population will put "increasing pressures on the State pension in the years to come", according to the Irish Fiscal Advisory Council (IFAC).

In a new report, the watchdog warned the State's 'pay-as-you-go' system for pensions - where the current year's PRSI contributions cover pension payments - will struggle to keep up with the country's ageing demographic.


The report stated Ireland's 'old-age dependency ratio' - the number of people aged over 65 compared to those aged 15-64 - is set to more than double from 22 per cent in 2020 to 47 per cent in 2050.

"This ageing of the population will have significant impacts on the public finances, with spending on health, long-term care and pensions all set to rise," it added.

As an alternative to the current system, the IFAC recommended switching to a more long term approach, similar to Canada, to avoid the need for large increases to PRSI rates in the future.

This system would see PRSI contributions set at a constant rate to fund pensions over a longer term.


"This would be achieved by raising contributions from the baby boomers while they are working," the IFAC explained, adding: "This would reduce the burden on future tax payers."

The council's research found adopting such an approach for pensions would require a combined increase of approximately 3.5 percentage points to employee and employer PRSI rates.

However, the report noted this would be "around half the increase that would be required under proposals from the Pensions Commission" and could be "almost halved again" if the State pension age was also increased.

The IFAC also suggested that the PRSI rate could be lowered if 'excess' corporation tax receipts were used to finance future pensions.

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