Analogue Clock Face

Pre – Brexit

Prior to Brexit dominating our news flow and social media world, the phrase “Pension timebomb” had been getting a lot of coverage. I asked many of my friends if they have been reading these pieces, but it seems that the “P” word is still too boring a topic – even when you add timebomb to it. Many assume it relates to our own personal deadlines of when to save – but actually, it is much bigger than that.

We are all aware that when we retire there will be a drop in our income and that saving for retirement is required in order to replace some of that income. Recent figures from the CSO indicate that with only 47% of the population are saving for retirement, that over 53% of the population plan to rely on the state pension, either on purpose or by default.

The State Transition Pension was abolished in January 2014, thereby increasing the state pension age to 66. The state pension age is due to increase further to: Age 67 in 2021 Age 68 in 2028. This means that if you are 50 or under, at the very least, you will be 68 before you are entitled to draw the state pension. It is not unreasonable to expect further increases to the state pension age to 70 (The UK have already moved to age 70). Employment contracts still tend to maintain a mandatory retirement age of 65 while employment law states that an employer must “objectively justify” their mandatory retirement age. However the criterion to do so is wide enough to make this easily remain possible. If you only have the state pension to rely on, what will bridge the gap for you between age 65 finishing work and age 68 when the state pension kicks in? And this is the situation for over half the population?

Tick tick tick

Ireland is an ageing population, while currently, for every 1 retired person, there are 6 people in employment. By 2050, there is expected to be less than 2 people in employment for every retired person*. The state pensions are paid out of the exchequer (tax take) in the year they are due, which highlights further how stark a 2:1 ratio is. If you are age 34 then 2050 is your year – will the state pension be around at its current level based on these figures – I don’t think so. Tick tick tick…

So how much is this state pension so many of the population is so heavily reliant on in retirement?

State Pension (2016)

  • State Pension (Contributory) €233.30 per week [€12,132 p.a.]
  • Personal + Adult dependant (66 and over) €442.30 per week [€23,000 p.a.]
  • Personal + Adult dependant (under 66) €388.80 per week [€20,218 p.a.]

Compared to the average industrial wage, it’s a drop in income at retirement of about 65% if you are single and 40% if you are married. The picture in Ireland right now is that over half the population are heavily dependent at their retirement on a state pension system that is absolutely unsustainable at its current level. Ireland needs to address this Pension timebomb and it will take a strong political will to address this issue and unpopular choices will have to be made.

As a nation, we simply have to insist that government start addressing this issue today. It is by its very nature a “tomorrow” problem for the politicians, much like saving for retirement can be a “tomorrow” problem for us as individuals. It is a TIMEBOMB we can no longer ignore.

*Source: National Pensions Framework, 2010.

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