An increase in the retirement age to at least 70 and possibly even 75 would be the most effective way to reduce the cost of State pensions, according to a new report. The cost to the State of providing pensions is set to more than double by 2050, the Society of Actuaries in Ireland warns, providing a major financial headache to the State.
The report, due to be presented to the society's conference on ageing next month, estimates that the cost of providing State pensions will increase from a current level of 2.9 per cent of gross domestic product (GDP) to 7.9 per cent of GDP in 2050. By that time there will be only two people of working age for every pensioner compared with six currently, meaning the burden will increase very substantially.
The change in the make-up of the population results from improved life expectancy, together with falling birth rates. At present, less than 500,000 people are over 65, but the society estimates that this will rise to 1.25 million by 2050.
The analysis by the society's population studies work group was based on paying a State pension equivalent to 34 per cent of average industrial earnings, the level set as a target by the National Pensions Policy Initiative. Currently, the contributory old age pension rate of €147 per week is about 28 per cent of average industrial earnings and the non-contributory rate is about 26 per cent of average earnings.
In addition to the sharp increases in pension costs, the report warns that an ageing population could push the day-to-day costs of running the health service from 6 per cent of GDP now to almost 9 per cent by 2050.
"It is obviously very difficult to anticipate how affordable this will be in 2050," the report says, and increased economic wealth may allow the costs to be met. However, as the total cost of meeting pensions and healthcare costs will rise from 27 per cent of the work population salary now to 32.6 per cent in 2025 and 50.3 per cent by 2050, the reports says other solutions should also be examined.
Saving through the National Pension Reserve Fund and private pension funds will help, it says. "However, ultimately a decision will still have to be made as to whether we can afford to pay pensions to one in three of the adult population."
The study found that increasing the retirement age was by far the most effective way to reduce State pension costs. Increasing the retirement age from 65 to 70 by 2050 would increase the pensioner support ratio - the number of people working for every pensioner - from two to 2.78, it says, while setting 75 as the retirement age would increase the ratio to 4.4.
The Society of Actuaries ageing conference takes place on October 8th in Dublin. Details on www.actuaries-soc.ie
