Ireland has experienced a rapid increase in longevity in recent years. In 1926, Irish male life expectancy was 57.4 and 65 year olds could expect to live another 12.8 years. Female life expectancy was 57.9 and those reaching 65 could live a further 13.4 years.
While male life expectancy grew steadily in subsequent years, it was only in 1991 that 65 year old males began to live longer than in 1926. By then, male life expectancy was 72.3 and a 65 year old could expect to live for 13.4 years. Female life expectancy was 77.9 and a 65 year old could expect to live another 17.1 years. As more people are living longer, older people are becoming a bigger proportion of the population and this is having a knock-on effect on pensions.
If we look at a snapshot of the Irish population in 1950, the average male left school and went to work at age 14; he worked for an average 53 years and when he retired he could expect to survive for 11 more years. By 2004, the average male left school at 16 and worked for another 47.6 years before retiring but now needs a pension for another 20 years.
In simple terms, ignoring growth or inflation, in 1950 a person needed to put aside 20% of earnings to provide a pension in retirement for 10 years. By 2004, making the same assumptions, the average person would need to put aside 42% of annual income to provide a pension for 20 years.
The qualifying age for the Old Age pension was 70 until 1970’s when it began to drop eventually to 66. Now more and more people are retiring and living longer; young people are emigrating, reducing the number of taxpayers who fund those pensions. This ‘pensions time bomb’ will not easily be solved but it is likely that a solution will emerge from a combination of increased savings, increased taxation and reduced pension benefits.