Country's debt to quadruple as nation gets older
IRELAND'S national debt is on course to quadruple in future decades due to ageing, and the costs will dwarf those linked to the banking crisis, a study by a leading ratings agency finds.
A new report from Standard & Poor's (S&P) spells out alarming consequences of Ireland's ageing population if pension and retirement policies are not reformed soon.
Ireland's debts will shortly hit 100pc of everything we produce, but if ageing costs are not contained this will surge to 441pc by 2050, the report points out.
The costs associated with the banking crisis will be very small compared to the higher healthcare costs and pension spending triggered by the ageing problem.
While age-related spending takes up 12.1pc of government spending, by 2050 this will have almost doubled. The agency said because of the costs involved, governments would have no choice but to reform pension and healthcare spending. No country could fund itself with debts at 441pc of GDP.
"No other force is likely to shape the future of national economic health, public finances, and policymaking, as the irreversible rate at which the world's population is ageing,'' said the authors. The report emphasised that its figures were not a prediction, but a "hypothetical scenario" if governments didn't take any steps to deal with the problem. Nevertheless, the scenario does reveal the dimension of the task future governments face.
The report does not push any particular solution, but says later retirements and reduction in pension benefits is likely to play a part.
Reform of healthcare is also mentioned throughout the report. Another key factor is the size of families and the dependency ratio of older people to younger people.
The challenges ahead are daunting, said the agency, particularly because of budget deficits and banking rescues.
"This may put the relationship between the state and electorate under strain and severely test social cohesion," the report said.
The agency said reforming the health and pension systems will become difficult because of the sheer number of people dependent on them in future. Economic growth and keeping a large work force will also be crucial.
"We expect that a crucial growth-friendly policy that many governments will have to embrace is to find ways to encourage their people to remain active members of the labour force for many more years than is the norm today," it said.