The Pension time bomb is ticking even louder

It was interesting, and very worrying, to read about the report by international consultants McKinsey in the paper last week.  They said that the Old Age Pension is unsustainable. They say that the Social Insurance Fund from which State pensions are paid has a current deficit of €2 billion a year, which will increase to €11.6bn by 2040. The cumulative effect is estimated to rise to €133 billion by that time. I’ll be 65 in 2040, so it’s frightening to think that at that time, the Old Age Pension may not be affordable.

Mandatory Pensions

These have been talked about for years but nothing has been done. The government have constantly been making excuses about introducing it, waiting for perfect economic conditions before implementing them.

It is time they were introduced and they should be mandatory, not optional. With an election only a few months away, this government are not going to introduce measures that reduce people’s disposable income.

Increase PRSI & Ring Fence Contributions

In Ireland, an employee pays 4% PRSI and their employer pays 10.75%. This is supposed to pay for the Old Age Pension, Unemployment Benefit, Widow’s Pension, Disability Benefit. It is not enough and in reality it is put into the Exchequer along with all the other money collected in taxes.

A lot of people look at the benefits provided in France. Yes, they have very good benefits but they pay for them. In France, an employee pays 29% PRSI and their employer pays 52%. We need to contribute more and it needs to be ring fenced, so it is used for what it is intended for, not fixing roads or public service salaries. In other words, bring back the National Pension Reserve Fund.

Personal Responsibility

Like the government, most people are waiting for the perfect time to start a pension. That time when they have more money than they need. With the way life and the economy changes, that perfect time may never come. There will always be demands on your money and retirement planning is always low on your list of priorities. Unfortunately, when it becomes a high priority, it can be unaffordable.

To provide an income of €20,000 at age 65, you need a fund of €472,000. Below is the amount you need to contribute each month (before tax relief), based on when you start:

  1. Start pension at age 25  –  €250 per month
  2. Start pension at age 35  –  €496 per month
  3. Start pension at age 45  –  €1,080 per month
  4. Start pension at age 55  –  €3,045 per month

There has been expensive report after expensive report written about Ireland’s pension problem and absolutely nothing has been done. It very much looks like we will have to fund for our own retirement and not rely on the State.

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