IRELAND’S pension system ranking has dropped one place to 14th out of 44 countries in the 2022 Mercer CFA Institute Global Pension Index (MCGPI).
Ireland remains ahead of some of the larger European countries such as Germany (17th), France (22nd), and Spain (26th). Iceland’s retirement income system has once again topped the rankings, with the Netherlands and Denmark retaining second and third places respectively.
Ireland’s retirement system received a B grade, with the overall Irish index value increasing from 68.3 in 2021 to 70.0 in 2022, primarily due to increases in net replacement rates (the percentage of pre-retirement earnings covered by the State Pension).
The MCGPI is a comprehensive study of 44 global pension systems, accounting for 65 percent of the world’s population. It benchmarks retirement income systems around the world, highlighting some shortcomings in each system, and suggests possible areas of reform that would help provide more adequate and sustainable retirement benefits.
Ireland’s overall ranking is primarily affected by its low sustainability rating, ranking in 21st place for this, compared to 14th for adequacy and 8th for integrity.
The government’s recent approval of plans to introduce a system of automatic pension enrolment is positive. The new system is still targeted for commencement in early 2024, although a number of implementation steps remain to be completed.
Removing this uncertainty and delivering the proposed system will improve both Ireland’s sustainability and adequacy ratings. It is notable that all other countries that received either an A or B+ ranking in the 2022 index have some form of the mandatory pension system in place.
Another factor affecting Ireland’s sustainability rating is the government’s approach to the State Pension age. In its October 2021 report, the Pensions Commission recommended a phased increase in the State Pension age to 68 years by 2039, to help address the cost impacts of an aging population.
While the government recently announced that the State Pension age will remain at 66, it also announced some additional reforms to the State Pension system. These include introducing rights for employees to remain in employment until their State Pension age, and a new system of flexible retirement, whereby employees can opt to defer payment of the State Pension up to age 70 in return for a higher pension. The government also intends to address the long-term sustainability of the State Pension system through incremental increases in social insurance rates over time. The potential impact of this policy approach on the long-term sustainability of the system is not yet known.
Ireland’s retirement income system comprises a flat-rate basic social security pension and a means-tested benefit for those without sufficient social insurance contributions. Voluntary occupational pension schemes and personal pension schemes provide supplementary income in retirement and cover about 66 percent of the current working population.
The 2022 MCGPI report also notes that the overall index value for the Irish system could be increased by:
Continuing to increase coverage of employees in occupational pension schemes by introducing the new mandatory enrolment arrangements, thereby increasing the level of contributions and assets.
Implementing government plans to introduce a minimum level of mandatory contributions into a retirement savings fund, thereby increasing the level of assets.
Increasing the labour force participation rate at older ages as life expectancies rise · providing greater protection of members’ accrued benefits.
Commenting on this year’s report, John Mercer, CEO of Mercer Ireland said: “Ireland’s retirement income system continues to compare relatively well with our peers in a global context. While Ireland’s ratings for adequacy and integrity remain strong and improving, once again there are questions to be addressed in relation to the overall cost and sustainability of the Irish retirement savings system.”