Looming pensions time bomb will lead to €3bn deficit in social welfare fund
The pensions time bomb is set to contribute to a €3bn-a-year deficit in the Social Insurance Fund (SIF) by 2030.
Department of Social Protection boss John McKeon will warn of the looming black hole in the fund that covers welfare payments like pensions and jobseeker's benefit when he appears before the Dáil's spending watchdog this morning.
Mr McKeon is expected to say that the SIF appears to be in "robust financial health" at present, but that Ireland's ageing population and "pension pressures" will inevitably see it enter into deficit.
It comes a week after the Government signed off on Social Protection Minister Regina Doherty's plan to bring in an auto-enrolment pension scheme for private sector workers as part of efforts to offset the demographic time bomb.
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Mr McKeon will tell the Dáil's Public Accounts Committee (PAC) that the SIF had an accumulated surplus of €2.3bn last year after spending of €10bn. It's anticipated that the surplus will reach €3.9bn by the end of this year.
However, Mr McKeon's statement to the committee warns that such surpluses can be wiped out very quickly.
He will give the example of a €3.4bn surplus being eliminated in 15 months during the economic crisis.
He says that future demographic trends will significantly increase expenditure of the SIF "as the number of older people in our society increases".
Next year will see increased spending from the SIF of around €520m, with more than €330m of that due to "pension pressures".
Mr McKeon says: "This trend will continue with the result that it is inevitable that even with positive economic conditions the fund will enter into and remain in deficit."
The most recent actuarial review forecasts an annual spend of about €15bn and yearly deficit of around €3bn by 2030.
Mr McKeon says this "sets a challenging context for the development of medium to long-term policy". The Government's latest national risk assessment has identified the pensions issue as one of the most significant issues facing the State in the coming years.
The number of people entitled to the State pension is set to more than double over the next 36 years.
The auto-enrolment scheme for pensions is not due to be launched for another two years, despite being 20 years in gestation.
It will apply to 585,000 private sector workers who have no pension provision at present. These people will be automatically opted into the new scheme.
Those aged between 23 and 60 and earning more than €20,000 will pay 1.5pc of their pay for the first three years.
Their contribution will rise by 1.5pc every three years after that, until it reaches 6pc of their wages at the beginning of year 10.
Employers will make the same contribution, under the plan signed off by the Cabinet.
Separately, Mr McKeon will update TDs on the impact of Brexit on social protection services. He says the department has signed an international convention with the UK which "fully protects the interests of citizens from both jurisdictions regardless of the nature of any Brexit".
"People will have access to the same benefits on the same terms under this agreement as they do at present," Mr McKeon will say.