Caitríona MacGuinness, Mercer Ireland’s leader in defined contribution and private wealth, issued a warning five years ago about the pressure that the rapidly ageing population would put on Ireland’s relatively abundant state pension by 2050. The fall in the State pension’s ability to align with the rise in average national incomes has played a major role in pulling the country down to it’s worst ranking in a decade. This conclusion came from a study examining pension plans for two-thirds of the global population.
A global trend was identified, with elements such as extended life expectancy, high interest rates and soaring costs for care pushing national pension budgets to their limits. This resulted in a drop in scores in Mercer’s CFA Institute Global Pension Index globally. However, Ireland continued to be a top performer in this downward trend.
The study, which evaluates state and private pension coverage, indicated that Ireland remains average in Europe. It lags noticeably behind first-place Netherlands, yet performs better than Italy and Austria at 35th and 40th places respectively.
Nevertheless, MacGuinness is optimistic that the repeatedly promised compulsory workplace pension scheme, or auto-enrolment, will enhance the perceived sustainability of the pension income system in Ireland. Even though its implementation has been delayed several times, Mercer has long supported the introduction of auto-enrolment to strengthen Ireland’s pension provision. MacGuinness appreciated the recent resolution to finally implement auto-enrolment in late September of the following year.
A potentially greater issue for prospective retirees in Ireland and other parts of the world is the prevailing defined contribution pension model. This model places the responsibility of making investment decisions, which determine the sufficiency of retirement income, on the individual pension scheme members. Many of them are sadly not equipped to make such crucial determinations.
Finally, note that Mercer and similar companies are the ones guiding employers as they transition from the more secure defined benefit pension schemes, which guaranteed workers a predetermined percentage of their retirement earnings, to a considerably more risky current model.