Pension reforms have lowered the pension promise for workers entering the labour market today, a major analysis on retirement provision worldwide has concluded.
“Working longer may help to make up part of the reductions but every year of contribution toward future pensions generally results in lower benefits than before,” the authors of the OECD report state.
However, the study of the national pension systems of 42 countries, including Ireland, says the evolving reforms of the past 20 years have, in most cases, protected the lowest earners from benefit cuts.
“The reduction in old age poverty has been one of the greatest social policy successes in OECD countries,” it notes. In 2010, the average poverty rate among older people was 12.8 per cent, down from 15.1 per cent in 2007 “despite the Great recession”.
On average in the OECD the incomes of people aged 65 and above is 86 per cent of the level of the disposable income of the population as a whole, putting them among the better off in their societies.
But ageing populations mean pension spending by the state is likely to increase. Recent reforms in different countries, including raising the retirement age, have been aimed at “maintaining or restoring financial sustainability of pension systems by reducing future pension spending,” the reports says. Nonetheless, it warns that the social sustainability of pension systems and adequate retirement incomes may become a major challenge for policymakers.
In relation to Ireland, the report notes that public pension spending is less of a burden than elsewhere, accounting for 5.1 per cent of GDP in 2012 compared to an OECD average of 7.8 per cent.
Poverty in old age is also less of an issue, with 8 per cent of those over 65 deemed “income poor” against the OECD average of 12.8 per cent.
By 2050, most countries will have a retirement age of 67 – in Ireland, from 2028, it will be 68 – but the report says governments need to do more to encourage people to save more for their retirement.