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Caitriona MacGuinness: 'Electioneering must not ignore reality of ageing nation'

Caitriona MacGuinness


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'As life expectancy improves, many young workers are likely to have to stay employed for longer.' Stock image

'As life expectancy improves, many young workers are likely to have to stay employed for longer.' Stock image

'As life expectancy improves, many young workers are likely to have to stay employed for longer.' Stock image

Health and housing may be playing a prominent role in the election debates, but the issue of pensions has emerged as a surprise area of controversy. With the 'grey vote' most likely to turn up to the polls, it is an area that every party is clearly keen to strike an appealing position on.

Throughout all of the debates, it is worth remembering that short-term political gain and managing the long-term sustainability of the pensions system are not always mutually consistent goals. We now live on average 10 years longer than our parents' generation, and nearly two decades longer than our grandparents'. In fact, a majority of children born today are now expected to live until they are 100.

This trend reflects progress and innovations in such things as health and technology, while also posing a pressing challenge when it comes to the growing cost of providing financial support for an ageing population.

Many countries are taking steps to increase the state pension age and Ireland is no exception, with the age currently expected to increase again to 67 in 2021, and to 68 by 2028, to help offset some of the costs.

The dilemma is clear: the sustainability of the pensions system needs to be protected for the longer-term good of the population - but what about the potential hardships imposed on prospective pensioners?

For years, most private sector employers have operated a long-standing conventional retirement age of 65, logically aligned with the original state pension age.

When Ireland first increased the state pension age to 66 back in 2014, people retiring at 65 could supplement their private pension by claiming Jobseeker's Allowance.

The forthcoming increases to the state pension age will widen this private pensions gap.

Those retiring before they can claim the state pension may now need to rely not just on other social welfare benefits (if eligible), but also on larger private pension drawdown in the early years, longer working, or a combination of all three, to help bridge this gap.

None of these are likely to be attractive to many, and therein lies the issue that has become part of the election debate.

Voters will have to form their own view on how to support pensioners in bridging the gaps caused by longer living, while remaining conscious that there is a ticking financial time bomb that our children, and our children's children, will undoubtedly inherit.

With CSO statistics showing that more than 40pc of workers aged 20 to 69 have no form of pension, the need to stimulate more private saving is arguably the area that should get greater focus in the election's pensions debate.

Affordability is still a real concern. Some 33pc of all workers say they simply cannot afford a private pension.

Of those who don't have any pension savings at all, a sizeable majority are expecting to rely solely on the state pension.

For women, the problem is more acute. A study by the Economic and Social Research Institute showed that only 28pc of women had pension savings in addition to the state pension, compared with 55pc of men.

The proposed new automatic enrolment system for pensions should, in theory, help improve the situation and address some of the issues identified by the CSO statistics.

The system would see individuals automatically make pension savings, with contributions from employers, while maintaining the ability to opt out.

This approach has been adopted in a number of countries and is proving to be successful; for example, in the UK, there are an additional 10 million workplace pension savers since their system was introduced in 2012.

Pensions remain the most tax-efficient method of accumulating a retirement fund, and more could still be done to educate the population regarding the realities of a longer post-employment phase - and how to plan and save accordingly.

Looking to the future, continuing to work for a longer period seems inevitable for many and, with contractual retirement ages becoming more difficult for employers to enforce, this could present individuals with additional options and help bridge the pensions gap, until they qualify for state pension benefits.

Research recently undertaken by Mercer revealed that nearly 90pc of companies interviewed had received requests from employees to work beyond their contractual retirement age, but less than half had any kind of longer or flexible working policy in place.

This is an area that will come under greater scrutiny over the months and years ahead.

As a result, employers will need to understand how they are going to accommodate older workers and optimise an ageing workforce.

Mercer research shows the benefits of developing a more experienced workforce, which can be a source of talent and competitive advantage for companies, with fewer people changing jobs and greater knowledge-sharing leading to increased productivity.

Employers should look to embrace the opportunities that an older and more experienced workforce might bring.

Decisions that are made as part of both adapting our pensions system and also building a suitable employment environment will prove highly significant in how successful Ireland will be in meeting the demographic challenges of the future.

Let's hope the political system is capable of addressing this long-term challenge in a way that is both fair and reflective of the changes and challenges we are facing.

Caitriona MacGuinness leads DC pensions consulting at Mercer Ireland

Sunday Indo Business