• Current students
      • Student centre
        Enrol on a course/exam
        My enrolments
        Exam results
        Mock exams
        Learning Hub data privacy policy
      • Course information
        Students FAQs
        Student induction
        Course enrolment information
        Key dates
        Book distribution
        Timetables
        FAE Elective Information
      • Exams
        Exam Info: CAP1
        E-assessment information
        Exam info: CAP2
        Exam info: FAE
        Reasonable accommodation and extenuating circumstances
        Timetables for exams & interim assessments
        Interim assessments past papers & E-Assessment mock solutions
        Main examination past papers
        Information and appeals scheme
        JIEB: NI Insolvency Qualification
      • CA Diary resources
        Mentors: Getting started on the CA Diary
        CA Diary for Flexible Route FAQs
      • Admission to membership
        Joining as a reciprocal member
        Conferring dates
        Admissions FAQs
      • Support & services
        Recruitment to and transferring of training contracts
        CASSI
        Student supports and wellbeing
        Audit qualification
        Diversity and Inclusion Committee
    • Students

      View all the services available for students of the Institute

      Read More
  • Becoming a student
      • About Chartered Accountancy
        The Chartered difference
        What do Chartered Accountants do?
        5 Reasons to become a Chartered Accountant
        Student benefits
        School Bootcamp
        Third Level Hub
        Study in Northern Ireland
        Events
        Blogs
        Member testimonials 2022
        Become a Chartered Accountant podcast series
      • Entry routes
        College
        Working
        Accounting Technicians
        School leavers
        Member of another body
        International student
        Flexible Route
        Training Contract
      • Course description
        CAP1
        CAP2
        FAE
        Our education offering
      • Apply
        How to apply
        Exemptions guide
        Fees & payment options
        External students
      • Training vacancies
        Training vacancies search
        Training firms list
        Large training firms
        Milkround
        Training firms update details
        Recruitment to and transferring of training contract
        Interview preparation and advice
        The rewards on qualification
        Tailoring your CV for each application
        Securing a trainee Chartered Accountant role
      • Support & services
        Becoming a student FAQs
        Who to contact for employers
        Register for a school visit
    • Becoming a
      student

      Study with us

      Read More
  • Members
      • Members Hub
        My account
        Member subscriptions
        Annual returns
        Application forms
        CPD/events
        Member services A-Z
        District societies
        Professional Standards
        Young Professionals
        Careers development
        Diversity and Inclusion Committee
      • Members in practice
        Going into practice
        Managing your practice FAQs
        Practice compliance FAQs
        Toolkits and resources
        Audit FAQs
        Other client services
        Practice Consulting services
        What's new
      • Overseas members
        Working abroad
        Working in Australia
        Overseas members news
        Tax for returning Irish members
      • In business
        Networking and special interest groups
        Articles
      • Public sector
        Public sector news
        Public sector presentations
      • Support & services
        Letters of good standing form
        Member FAQs
        AML confidential disclosure form
        CHARIOT/Institute Technical content
        TaxSource Total
        Audit Qualification requirements
        Pocket diaries
        Thrive Hub
    • Members

      View member services

      Read More
  • Employers
      • Training organisations
        Authorise to train
        Training in business
        Manage my students
        Incentive Scheme
        Recruitment to and transferring of training contracts
        Securing and retaining the best talent
        Tips on writing a job specification
      • Training
        In-house training
        Training tickets
      • Recruitment services
        Hire a qualified Chartered Accountant
        Hire a trainee student
      • Non executive directors recruitment service
      • Support & services
        Hire members: log a job vacancy
        Firm/employers FAQs
        Training ticket FAQs
        Authorisations
        Hire a room
        Who to contact for employers
    • Employers

      Services to support your business

      Read More
☰
  • The Institute
☰
  • Home
  • Articles
  • Students
  • Advertise
  • Subscribe
  • Archive
  • Podcasts
  • Contact us
Search
View Cart 0 Item
  • Home/
  • Accountancy Ireland/
  • Articles/
  • Technical/
  • Latest News/
  • Article item

The State pension: one piece in a complex puzzle

Oct 04, 2021
Drawing on research and global experience, Munro O’Dwyer explains why the creation of a sustainable State pension system is a knotty – but not insurmountable – challenge.

The Pensions Commission was established in November 2020 to “examine sustainability and eligibility issues… and outline options for the Government to address issues including qualifying age, contribution rates, total contributions and eligibility requirements”. One of the terms of reference was to examine how private sector employment contracts specifying retirement ages below the State pension age may impact on the State’s finances and pension system.

While the report is yet to be published, it is of interest to look at the retirement ages and policies of other countries to put Ireland’s approach into context.

Many countries have adopted policies that seek to tap into the social and economic benefits of longer working lives. The United States abolished mandatory retirement in 1986 while, with some exceptions, New Zealand followed in 1999 and Australia in 2004. The UK followed suit in 2011, although a compulsory retirement age remains. This can apply if a job requires certain physical abilities or has an age limit set by law.

The PwC Golden Age Index helps to explain the rationale for these policies. The Index is a weighted average of seven indicators, which reflect the labour market impact of workers aged over 55 in OECD countries, including employment, earnings, and training. The most recent report identifies that the OECD could achieve a $3.5 trillion boost to GDP in the long-term if countries raise the employment rates of those aged over 55 to match New Zealand levels (with New Zealand having the greatest level of employment market participation across older workers). For Ireland, the potential gain was estimated to be around 9% of GDP, or roughly €25 billion.

The Index identified key drivers of employment for older workers – successful policy measures include increasing the retirement age, supporting flexible working, improving the flexibility of pensions, and further training and support for older workers to become ‘digital adopters’.

So, what influences the age to which we work?

Many factors influence workforce participation at older ages, from marital status to gender participation gaps and public expenditure on family benefits, among others. It is interesting to step through a few of the factors in more detail in the context of the debate in Ireland.

It is reasonably intuitive that life expectancy generally has a positive impact on employment patterns for older workers as the longer people are expected to live, the more likely they are to spend more of their life working. Life expectancy also captures other factors that may influence the employment rate for older workers – the level of health, for example, which could be impacted by healthcare policies, medical advances, and technological developments. Repeated studies have shown that health influences the age at which a worker retires.

Greater expenditure on pensions is expected to reduce the incentive for older workers to participate in work, as increases in State pension wealth are associated with a lower retirement age. Interestingly, studies across several countries on the effect of general employment protection laws and age discrimination laws have been mixed. Some studies argue that these laws negatively affect employment among older workers, as employers see older workers as a greater burden if they have greater protection, even though the intended effect is to help improve employment prospects for older workers. This highlights the complexity involved in setting retirement ages and supporting older workers to participate in the workforce.

What burden will fall on younger generations?

Much has been written about the potential for significant changes in Ireland’s demographics, with the dependency ratio (the number of persons in employment relative to those in receipt of pension benefits) projected to fall over the coming decades. This will potentially create strains around the financing of the system into the future and may create a perceived intergenerational inequity. The Pensions Commission is tasked with identifying measures to review the projected changes in demographics, earnings, and the labour market, and the associated costs of these changes.

Aside from potential pension financing cost arguments, will longer working lives limit opportunities for younger workers? The argument is often made that the amount of work in an economy is fixed, so one more job for an older person means one less job for a younger person (the ‘lump of labour’ theory). Research has repeatedly shown that this theory is not observable in practice, and instead identifies that the number of jobs in an economy is elastic – labour markets are dynamic, and economies adapt to labour force changes. Simply put, an economy can and will create more employment opportunities to reflect extra participants entering the labour force.

Policies enforcing mandatory retirement ages do not help create jobs for younger members of the workforce. In fact, they reduce the ability of older workers to contribute – both directly and in terms of the experience they bring.

What other perspectives exist?

In a recent Ibec survey, 67% of respondents believed that abolishing an employer’s right to fix a retirement age would have a negative impact on their business, although 73% of those surveyed also consider retaining staff beyond their fixed retirement age, with most of those surveyed using the option of a post-retirement fixed-term contract. Arguably, these responses are somewhat in conflict with each other, highlighting the complexity of the issues in question.

A key concern of employers is that the current legislative framework presents many difficulties, particularly where an employer seeks to facilitate employee requests to work longer. Similar concerns were identified in terms of employers’ ability to conduct effective workforce planning.

In contrast, the Citizens’ Assembly has called for an end to mandatory retirement ages. Allied to the introduction of pension auto-enrolment, these were seen as the most appropriate means of responding to the challenges created by the State’s ageing population. An Interdepartmental Group on Fuller Working Lives reported that retirement at the age of 65 was impractical given the potential for a gap to emerge between that age and the State pension age.

To the extent that there is common ground, it is arguably around setting the retirement age at a level consistent with the State pension age. This would address the gap that would otherwise emerge for employees leaving the workforce, but who are ineligible for State pension benefits.

What model should Ireland adopt?

Looking at experience globally, the State pension age is simply a single aspect of a complex system. Contribution and coverage levels across the private pension system, mandatory retirement ages, the role of the State in providing social insurance benefits, employment levels more generally – the range of factors goes on and on.

There is greater consensus around what “good” might look like. Where people live longer and healthier lives, the wish is that employees will want to, and will be supported to, remain in the workforce for longer, which in turn enables increases to the State pension age. Increases to the State pension age in turn allow the payment amount to keep pace with the expectations of retirees. This virtuous circle then supports greater sustainability across the social protection system.

The Pension Commission report will offer several proposals for consideration. It is to be hoped that decisions made will set the course for a sustainable pension system that appropriately supports generations of retirees into the future.

Munro O’Dwyer is a Partner at PwC Ireland.

The latest news to your inbox

Useful links

  • Current students
  • Becoming a student
  • Knowledge centre
  • Shop
  • District societies

Get in touch

Dublin HQ

Chartered Accountants
House, 47-49 Pearse St,
Dublin 2, Ireland

TEL: +353 1 637 7200
Belfast HQ

The Linenhall
32-38 Linenhall Street, Belfast
Antrim BT2 8BG, United Kingdom.

TEL: +44 28 9043 5840

Connect with us

CAW Footer Logo-min
GAA Footer Logo-min
CARB Footer Logo-min
CCAB-I Footer Logo-min

© Copyright Chartered Accountants Ireland 2020. All Rights Reserved.

☰
  • Terms & conditions
  • Privacy statement
  • Event privacy notice
LOADING...

Please wait while the page loads.