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Monday 16 September 2019

'Billions needed to fill State pension fund gap' - TDs warned

Warning: Department of Social Protection chief John McKeon
Warning: Department of Social Protection chief John McKeon
Cormac McQuinn

Cormac McQuinn

Extra funding running into billions of euro could be needed to top up the State's pension fund due to the growing number of older people, TDs will be warned today.

Department of Social Protection chief John McKeon will warn that a review of the Social Insurance Fund expects "significant annual deficits" in future due to the rising number of pensioners and increased life expectancy.

Major challenges in the funding of pensions in the years to come were identified by the Government's National Risk Assessment earlier this year.

The report forecast that the Social Insurance Fund - to which workers and employers contribute through PRSI - will be faced with a deficit of up to €335bn over the next 50 years if action is not taken.

The Dáil's Public Accounts Committee (PAC) is today examining the actuarial review of the Social Insurance Fund.

State spending watchdog, the Comptroller and Auditor General (C&AG), described that review a "valuable exercise" as it enables informed discussion about the expected long-term implications of current decision making.

The review included projections from 2016 to 2071 and found that "sizeable Exchequer subvention" will be required in the long-term to meeting spending requirements.

It estimates the required extra funding at €1.7bn in 2025, €5.6bn in 2035 and €11.4bn in 2045.

Mr McKeon is to tell the PAC that the Social Insurance Fund, unlike private pension funds, does not operate on a pre-funded basis.

His statement says it works on a "pay as you go basis" with current year expenditure funded by current year revenues.

Mr McKeon says deficits in any year are funded by an Exchequer subvention.

The fund is projected to have a €2.3bn surplus in 2018.

However, Mr McKeon says adds the fund has run deficits in six of the last 10 years and that during what he describes as the "great recession" the total value of deficits amounted to €11bn.

He says that the five-yearly actuarial review indicates that the value of the State pension alone is worth more than the value of the contributions made.

He will say: "For this reason, given the projected increases in the numbers of older people and increasing life expectancy, the actuarial review projects significant annual deficits into the future."

Mr McKeon will add that the funding of the Social Insurance Fund - in particular the setting of social insurance rates and investment of any surpluses - is under the remit of the Finance Minister.

Last night PAC chairman Seán Fleming said the actuarial review will be among the issues TDs will examine today.

He said: "The review's projections indicate that in the absence of further action to tackle the shortfall, sizeable Exchequer subvention will be required to meet ongoing expenditure."

The Government's National Risk Assessment 2018 said the pension system "faces a number of very serious demographic, adequacy and sustainability challenges".

Irish Independent

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