Government faces challenge of bridging pensions funding gap in the future

Funding pensions for future generations will be one of Ireland’s greatest challenges in the years to follow. The Social Insurance Fund (SIF) is what is used to pay for both State pensions and Social Welfare benefits that are given to retirees and unemployed people respectively. Even though the SIF has accumulated around €8 billion in Pay Related Social Insurance (PRSI) contributions deducted from workers’ pay packets, it is now running at a loss of €1.5 billion. And the cost to provide for it is going to sky rocket.

Assuming current levels remain constant, the SIF will operate with a staggering deficit of €324 billion by the year 2066. These bleak findings were derived from a Government commissioned report carried out by major consultancy firm, KPMG. The main reason cited for the ever-increasing gap in servicing the fund due is the continual rising of pension liabilities. Indeed, from the year 2000 up to 2010, the weekly payment of the standard old age pension rose by 90% which equates to a real increase of 62% when the effect of inflation is factored in.

During more plentiful times, tax revenues from house sales during the property boom enabled the Government to fund such increases. With this income stream heavily diminished, the current situation with pension payments has become unsustainable. The decision makers are faced with tough decisions. In order to bridge the future gap, two key choices are at the Government’s disposal. Either the rate of PRSI is increased to raise revenues or future pension payments have to be linked to inflation.

Even if this issue was addressed, contributions from the State are just approximately a third of the average industrial wage which is not enough to maintain a comfortable lifestyle in retirement – and this is not adjusting for inflation leaving pensioners out of pocket even more. Even despite the perception of private pension products not performing, our pensions advisors can prepare a portfolio that will generate enough future funds so you can enjoy your retirement.

Do not put your retirement plans on hold – contact us today on 1890 746 759 or e-mail info@simplyinsure.ie to arrange for a consultation.