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Richard Curran: 'Pensions spat belies real time bomb of ageing population'

Richard Curran


Battleground: Pensions have become a key issue in the election campaign

Battleground: Pensions have become a key issue in the election campaign

Battleground: Pensions have become a key issue in the election campaign

Sometimes it takes an election row before a real spotlight is thrown on the anomalies of a particular issue. Sometimes the light is only shone for a couple of weeks of electioneering.

In this case, the surprising new battleground in the election is pensions, and the fact the state pension age will rise from 66 to 67 next year.

Politicians should know a few basic things about pensioners. Firstly, they are not to be messed with, as Brian Lenihan found out in one of his early Budgets during the financial crash.

Secondly, they tend to vote. And thirdly, we are going to have a lot more of them in the country in the years ahead.

The election row, over how to prevent thousands of people per year signing on the dole for two years before receiving the state pension, is a true shambles.

This anomaly became obvious when the state pension age went up to 66, but it wasn't really tackled.

Now, in the heat of an election campaign, the outgoing minister, Regina Doherty, is suggesting she has plans to deal with it and has heard what those in their 60s have been saying.

Fianna Fáil, on the other hand, smells blood and is playing up the idea that it will only increase the age to 67 after conducting a serious review.

Strong hints are being given out that the plan for age 67 will be dropped too.

Throw into the mix the incendiary fact that public sector employees can receive a supplementary pension payment to avoid having to sign on for two years, and it is a perfect political storm.

However, the reality is much more serious than that. And what we are seeing now is probably just the beginning.

All politicians have to do is look at the population statistics to see what a ticking time bomb the ageing population is set to become.

Right now, Ireland retains what is still described as a relatively young population. However, it is set to change.

By 2030, now just 10 years away, the population aged 80 or above will increase by as much as 94pc from current levels, according to an ESRI study published in 2017.

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We are looking at having around a quarter of a million residents of the country aged over 80.

Right now, around one in 10 of the people living in Ireland is over the age of sixty-five.

By 2041, it is estimated that one in four people will be over the age of sixty. These are dramatic and costly changes both for people in Ireland themselves and for governments that will have to provide for these changes.

Pensions are just one aspect of it. Every five years, the cost of the state pension to the Exchequer increases by about €1bn.

Public sector pensions are funded by public sector workers and their employers - namely the public sector or the State.

Putting all of the future public sector liabilities into a single bill does make it look dramatic, with the cost coming in well north of €120bn.

The public sector pension bill is paid out of general taxation each year, rather than the State having a single investable pot of money to fund these liabilities into the future.

The National Pension Reserve Fund, set up by Charlie McCreevy in 2001, aimed to provide a large fund to cover some of these eventual future liabilities.

That fund was supposed to begin contributing toward paying social welfare and public sector pensions from 2025 onwards.

Originally set up with the proceeds of the flotation of Eircom, the State added 1pc of GDP to it each year, when times were good.

When times were bad, it was raided to bail out the banks, among other things.

By 2007, it had a value equal to 12.5pc of GNP. By 2030, the fund would have had a value of around 40pc of GNP.

Not all of the money is gone but it is invested in Irish banks, startups and high-growth ventures, and the rest is still held in global investment funds.

It is valued at around €17bn and there is now a plan to put some of it into a new rainy day fund.

However, right now, there is no invested State fund targeted to provide the money needed to pay future public sector pensions. If we needed it in 2001, we sure as hell need it now.

Other massive demographic, social and economic changes loom large and will have an impact on the pension issue.

The first is nursing home care. As the population ages, we will have an enormous need to provide more nursing home care and other services.

The health service will come under greater pressure as older people need higher and more expensive levels of health treatment.

Anyone relying on the state pension to live will be in big trouble.

This is not least because the percentage of the population renting instead of owning their own home is growing.

When you stop working and your income drops sharply, you will still need to pay rent if you want to live at home.

Right now, around one in 10 people who rent are paying 60pc of their income on rent.

Home ownership levels have been dropping since 1991 and are now around 67pc, lower than the EU average of 69.2pc. A shift to renting instead of home ownership isn't of itself a bad thing.

However, a shift away from home ownership without an adequate pension infrastructure behind it is a recipe for disaster.

The Government has been looking at introducing a system of auto-enrolment for pensions for some time.

It is finally due to begin in 2022. Given that it has taken so long, that there are still lots of unanswered questions about how it will work, and a possible change of government, we cannot be sure it will actually go ahead two years from now.

The proposals would see well over half a million workers who currently do not have a pension plan automatically enrolled to pay a portion of their wages into a scheme.

This would begin at 1.5pc of salary and steadily rise to 6pc within 10 years. Employers would have to contribute and so would the State.

It isn't rocket science to see how this could all unfold badly in the not-too-distant future.

The implications of an ageing population are well-known and can be planned for.

But just like the housing crisis, all the Government had to do was look at projections for growth in the population 10 years ago, and see how the rental and housing crisis was going to unfold.

The Government can argue that 10 years ago, it didn't have the money to fix the housing problem and build.

However, there was an opportunity around 2014, when the economy was recovering, to see the value of cheap housing to the economy and society, and prioritise that principal over achieving a recovery in property prices.

As things stand, the country is right on course to make the very same mistakes with an ageing population as it did with housing. It will require decisive and well-thought-out planning.

It won't be enough to have an election skirmish for the grey vote over the state pension age, only to forget about it after the votes have been cast.

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