The current retirement age makes the public finances unsustainable and needs to be increased, according to a new report from the Irish Fiscal Advisory Council (Ifac).
The State’s spending watchdog says under current policies, government spending would outstrip revenues from 2025 as pensions and health costs increase. In its Long-Term Sustainability Report assessing the Irish economy to 2050, the Fiscal Council says that while the State’s high debt level due to Covid-19 is being extensively discussed, longer-term challenges, including those associated with a rapidly ageing population and health care costs, will become increasingly important drivers of Irish fiscal sustainability.
The ageing of Ireland’s population has major implications for public spending on pensions, health and long-term care it warns. While the share of older people in Ireland is relatively low today by European standards, the population will age relatively fast so that the dependency ratio— the ratio of those aged 65 and up to those aged 15 to 64—will reach the current EU average by the mid-2030s. Life expectancy at 65 is expected to rise from 85 to 89 by 2050. This would leave the public finances on a vulnerable and unsustainable path, Ifac warns.
The last government had planned to increase the age of retirement to 67 next year and 68 in 2028, but it became a major political issue during the general election.
During talks on a programme for government, Fianna Fáil sought to retain the State retirement age at 66. In the end, the Coalition parties agreed to defer the issue for a year, pending a report from a newly established pensions commission.
Given the scale of the challenges involved, IFAC says the Government needs to consider strengthening the public finances earlier or making reforms sooner to reduce the scale of adjustment needed. “A credible plan to address long-term pressures needs to be developed and implemented,” according to the report.
Acting chairperson of the council, Sebastian Barnes, said: “Policy action will be required in the coming years to manage the impact of an ageing population on pensions costs and more widely to manage pensions and health pressures. Prompt and early action in the coming decade will help to reduce the overall adjustment needs. As life expectancy increases, implementing already legislated increases in the pension age to beyond 66 will go a long way to achieving this."
