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Cash shortfall looms over State benefits

PRSI contributions will not be enough to pay for welfare benefits in just three years time, and the system will then move into huge deficits, a new analysis by pensions experts has shown.

The shock assessment of the Social Insurance Fund by consultants Mercer came as the Minister for Social and Family Affairs, Martin Cullen, described the whole pensions system as unsustainable.

He was speaking as the Government launched a major discussion paper on the pensions problem, but said it is not yet willing to commit to any changes.

In a sign of the pressures which are building as the population ages and people live longer, the Government is considering an assault on "Rolls Royce" public sector pensions for future government workers.

The Government will examine the fixed link between pensions and current public sector pay, as well as calculating pension on basis of career average earnings, rather than the final salary at retirement age.

It may have to act sooner on the PRSI problem, if more of the cost of benefits such as contributory pensions and jobseekers' allowances are not to fall on general taxation.

At present, the PRSI payments have built up a surplus of more than €2bn, but this will disappear by 2010, Mercer say.

This is because increases in pensions and other benefits have not been matched by higher contributions.

By 2016, the shortfall could be €12bn a year in today's money.

"The deteriorating financial position can be traced almost entirely to the increase in benefit under the long-term schemes," the report commissioned by the Government says.

Mr Cullen pointed out that the Exchequer had covered shortfalls in the past, but acknowledged that the whole pension system must raise contributions and cut costs. "To do nothing would be disastrous," he said.

On public sector pensions, yesterday's discussion document says the Government is going to look at a number of options, including raising the public service retirement age and making workers pay higher pension contributions.

The reforms will only apply though to future appointees to the public service, as any changes for existing ones would be bitterly opposed by public sector unions.

Several sources in public sector unions said last night that the document would have to be studied in detail before issuing a response.

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In general, the demographic and budgetary realities "pose excessive future risk to the Exchequer", the Green Paper on Pensions says.

It is calculated that, by 2060, the average life expectancy for men will be 87 years, and for women 91 years.

The Government hopes to reach a consensus on new policies by the end of next year. In the meantime it is not favouring any options, including a SSIA-style matching contribution for each €1 saved in a scheme.

"The best way of achieving a sustainable and fair framework is to ensure diverse voices are heard and to build further on the social partnership approach," Taoiseach Bertie Ahern said at the launch of the document.

Fine Gael Social and Family Affairs Spokesperson, Olwyn Enright TD described the Green Paper as constituting "254 pages of nothing."

"It did not contain one single concrete proposal on how the Government will tackle the looming pensions crisis.

"This doesn't move the debate on one iota since the Pensions Board Recommendations in 2006, with the Green Paper full of options and no decisions."

Age Action said it is particularly concerned that adequate pension provision be made for current pensioners.

"Half of all pensioners are currently completely dependent on the State for their retirement income. That figures rises to 60pc for those living alone," it said.

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