Urgent need to focus on pension sustainability here – Mercer
Ireland is ranked in 14th place out of 39 countries in the 2020 Mercer Global Pensions Index despite the country’s underlying sustainability issue.
The Netherlands topped the index again this year despite significant pension reform currently under way there, but Ireland came ahead of countries such as Belgium, the UK, France, Spain and Austria.
Mercer said that Ireland has a comparatively generous State pension, supporting the adequacy ranking. But concerns remain regarding the low level of occupational pension coverage and the fact that Ireland’s population is ageing rapidly.
The fall from 1st place to 5th on adequacy was driven by the lack of increase in the rate of the contributory State Pension in Budget 2020, Mercer said.
It also said that Ireland’s relatively high ranking in this year’s index also masks an important underlying sustainability issue and when it comes to the sustainability subcategory, the Irish pensions system is ranked in just 24th place.
Mercer said this points to future challenges as the population ages. The ratio of workers to pensioners in Ireland is set to fall from 5:1 today to 2:1 by 2050, which means that there will be fewer workers to fund the State pension in the future.
The planned increase in the State pension age to 67 in 2021 was designed to help address this imbalance but, as announced in Budget 2021, this has now been deferred, Mercer also noted.
The 12th annual Mercer CFA Institute Global Pension Index highlights the fact that increasing life expectancies are placing greater demands on public resources to support the health and welfare of ageing populations – a situation that is being exacerbated by Covid-19.
Mercer also said it was clear that the widespread economic impact of Covid-19 is heightening the financial pressures facing current and future retirees.
The Global Pension Index benchmarks retirement income systems around the world highlighting some shortcomings in each system and suggests possible areas of reform that would provide more adequate and sustainable retirement benefits.
Today’s index shows that the Netherlands had the highest index value of 82.6 and has retained its top position in the overall rankings, despite the significant pension reforms occurring there. Ireland had a value of 65, while Thailand had the lowest index value at 40.8.
For each sub-index, the highest scores were the Netherlands for adequacy (81.5), Denmark for sustainability (82.6) and Finland for integrity (93.5).
The lowest scores were Mexico for adequacy (36.5), Italy for sustainability (18.8) and the Philippines for integrity (34.8).
Caitriona MacGuinness, DC and Master Trust Leader at Mercer in Ireland, said that at a high level, Ireland compares well in a global context, but there continues to be significant challenges when the details of the ranking are considered.
Ms MacGuinness said the State Pension continues to be generous in an international context.
“And while this supports those currently in retirement, it will be increasingly difficult to maintain this level of support in future as the population continues to age, particularly in light of the confirmation in Budget 2021 that plans to increase the State pension age next year have been put on hold,” she added.
She also noted that while the Programme for Government indicated an intention to progress the introduction of an auto-enrolment system, there have been no further developments on this.
“With the additional challenges of Covid-19, the target introduction date of 2022 is now very unlikely to be achieved. Without auto-enrolment, supporting future retirees will continue to be a challenge for policy makers with concerns on sustainability going forward,” Ms MacGuinness added.
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