The long-term sustainability of Ireland’s State pension remains a concern, benefits consultant Mercer states in its annual assessment of pension schemes globally.
It cites the recent Government decision to ignore the recommendation of its own pensions commission to gradually increase the age at which people qualify for the State pension over the coming decades.
“It remains to be seen how this decision will impact the sustainability of Ireland’s retirement system, notwithstanding other reform measures which have been announced,” the Mercer CFA Institute Global Pension Index 2022 says.
Overall, Ireland ranks 14th out of 44 national pension systems assessed, a fall of one position. It was held back by its ranking on sustainability (21st). On the integrity of its system, Ireland ranked eighth and it was 14th in terms of pension adequacy. The ranking for adequacy slumped from seventh last year as a more uncertain economic and investment outlook raised the risk profile for the increasing majority of Irish workers in defined contribution pension schemes.
Mercer said the promised introduction of a new soft mandatory scheme that would automatically enrol employees into a workplace pension scheme “is expected to have a significantly positive impact on overall supplementary pension coverage [outside the State pension system], and we have seen the success of these systems in countries where they have been introduced”.
Minister for Social Protection Heather Humphreys confirmed on Monday that auto-enrolment is due to come into force in Ireland in 2024 as she sent the draft heads of the necessary legislation for examination to an Oireachtas committee. However, the Mercer report notes that a number of steps “remain to be completed” before auto-enrolment is a reality.
It urged the Government to stick to its latest timetable. “We urge the Government to do all it can to ensure that the new system is introduced by 2024 as planned,” it said. “Removing this uncertainty and delivering the proposed system will improve both Ireland’s sustainability and adequacy ratings,” it added, noting that all the top-ranked pensions systems globally had some form of mandatory pension in place.
More broadly, the report notices that the balance of risk in retirement savings is moving increasingly on to the shoulders of workers rather than their employers as the number of defined benefit schemes — where retirement income as a proportion of your working earnings is promised by the employer — diminishes in favour of the defined contribution model where the eventual pension pot is determined by the amount invested and the investment performance of those funds.
“Individuals have been assuming more responsibility for their retirement savings for some time. Amidst high levels of inflation, rising interest rates and greater uncertainty about economic conditions, they are doing so in an increasingly complex and volatile environment,” warned David Knox, senior partner at Mercer and the lead author of the report, adding that policymakers need to do “all they can to ensure retirement schemes are supported, developed and well regulated”.
