Ireland's ageing population could push the public finances onto an unsustainable path, according to a study published by the Department of Finance today.
The report estimates that by 2050, age-related expenditure will be €17 billion higher.
Currently there are four people in work for every one person who has retired. But by 2050, that ratio will have shrunk to just over two people in work for every retired person.
People are living longer and families are becoming smaller - and all of this means there will be fewer working age people in the future to generate the resources necessary to support an older population.
These are the key findings in a report from the Department of Finance on the ageing of our population and its implications for the public finances.
The "Population Ageing and the Public Finances in Ireland" report says that without any changes, the demands of our shifting population will push the public finances onto "an unsustainable path".
The analysis did not include the added debt burden undertaken by the State to tackle the Covid crisis. It estimates the cost of keeping the qualifying age for the State Pension at 66 will be €50 billion over the long term.
The study formed part of the Finance Department's submission to the Commission on Pensions.
It said that while the country's demographic structure is relatively "favourable" at present, shifting demographics in the coming decades will result in a slower pace of economic expansion and increased age-related public expenditure.
The report states that the scientific evidence is clear and unambiguous - people are living longer, while fewer babies are being born in Ireland which means that the country's population is ageing.
This natural process is set to accelerate over the medium and longer-term, it added.
Today's report suggests that Ireland will have one of the most rapidly ageing populations in the EU over the coming decades, which will lead to a slower pace of economic growth and will put significant pressure on the public finances.
Simulations show that, in a hypothetical scenario in which there were no further policy responses, the fiscal costs associated with population ageing would add around 20 percentage points to the debt-to-GNI* ratio by 2050.
Beyond 2050, the fiscal position is expected to deteriorate significantly, with the debt-to-GNI* ratio reaching 180% by 2070, today's report added.
"Looking at the years ahead, the analysis of the impact of demographic change in Population Ageing and the Public Finances in Ireland highlights the need for serious policy considerations in this area," Finance Minister Paschal Donohoe said.
"In November 2020, the Government established the Commission on Pensions to examine the sustainability and eligibility issues with the State Pension and the Social Insurance Fund," he said.
"As my Department's report states, delaying policy decisions in this area has the potential to negatively impact the public finances in the years ahead, emphasising the importance of further progressing the Government's work in this area," the Minister added.
Finance Minister Pascal Donohoe has said the Government will seek to make a financially sustainable decision on the future of the state pension based on the grounds of fairness.
Minister Donohoe said a decision on increasing the pension age is one that will be considered after the Government reviews the report of the pensions commission, which he expects to be presented to the Cabinet sub-committee shortly.
He told RTE's News at One that "we have a very young population at the moment and in the coming decades the age profile will shift and this will impact all public services".
Paschal Donohoe said the Government will make a careful decision in the coming months "conscious of the costs of issues we will have to face in the future" and the need to maintain the social contract.
He also that the social welfare budget will focus on measures that reduce the risk of poverty for the most vulnerable.
In considering options for taxation and expenditure, the Minister said he is conscious that there has been no change made to the pension rate over a number of years but many valuable changes have been made to assist the vulnerable.
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The Minister for Finance also said today that the decisions the Government announces on Budget Day will "be seen by many as not to be making enough progress".
"Our economic supports have worked, they helped protect our economy at exactly the time it needed the protection, when we were dealing with the effects of this terrible (Covid-19) disease," Mr Donohoe told RTÉ's News at One.
"The one thing that is certain on Budget Day is that when I announce the decisions that we make and when Minister McGrath announces the decisions that we make, they will be seen by many as not to be making enough progress and not to be meeting different issues that are raised with us before the budgets," he stated.
When asked how he responds to the Fiscal Advisory Council pre-Budget statement, Mr Donohoe said: "It's intrinsic in the budget day process that we have to make decisions within a limited amount of money, albeit that amount of money is far bigger than it has been in the past",
"Our overall budgetary strategy will see us by 2023 eliminating all the borrowing that we have for day-to-day spending," Mr Donohoe said.
"I believe that will put us on a very solid basis for dealing with the medium-term issues that the Fiscal Advisory Council raised during the week," he stated.
"I listened to what they say carefully, and my focus for now, and the focus of Minister McGrath will be how we change the emergency levels of borrowing that we've had, when we were in the depths of a health emergency," he said.
"But as we put the health emergency behind us, we have to look at the changes that are needed now in levels of borrowing," he added.