PRSI rate may have to be doubled - pension expert
Published 19/08/2013 | 08:49
A leading Irish pension expert has warned that PRSI rate may have to be doubled if the state pension is not capped and means tested.
Samantha McConnell, chief investment officer at IFG Corporate Pensions, said that she believes the state pension is not sustainable on the social insurance fund, which is set to rise from 5.4pc of GDP in 2011 to 9.2pc by the year 2060.
Writing in a column in the Irish Examiner, she explained: "To put it another way, the current deficit on the social insurance fund is 6pc of GDP and this is expected to grow to 207pc of GDP by 2066, which is nearly double the value of the entire national debt.
"Bringing the social insurance fund into balance over the next 50 years would require PRSI rates to increase from 14.74pc to 27.6pc.
"Increasing PRSI rates to that level is in no way achievable.
Thus the only option for the Government is to cap/reduce the level of state pension."
Ms McConnell said that the decision "will be unpopular with the grey vote", but is necessary for a sustainable pension system.
"Equality will be a key issue here," she said.
"There are also huge inequalities between public and private sector pensions. Public sector workers are now contributing to their pensions, but in reality, the cost of providing their benefit far exceeds the contributions they are making; and private sector workers, where they are carrying the cost of funding, will never be able to get equivalent benefit."
The Government's new pension rules relating to new pensions did not "touch on" existing pensions, a move, which Ms McConnell says, is "unsustainable".
She later referenced Australia's successful pension scheme.
"Evidence from Australia suggests that mandatory pensions can happen over time and gain wide acceptance in a relatively short period.
"Our view is that mandatory schemes are the way to go.
"Contributing rates can start low and increase over time with potential wage inflation; while this won't address the addequacy problem immediately, as with anything to do with pensions, over the long term, it would have significant effect."
Ms McConnell also highlighted the issue with retirement age as the average person is living 16 years after they reach retirement age.