Ireland's younger generations face significant challenges in accumulating sufficient wealth to fund their retirement.
This will lead to this cohort facing increasingly lower standards of living in older age than their parents and grandparents.
That’s one of the conclusions of a new piece of research from the Central Bank of Ireland which found that shifts in Ireland’s demographic makeup has led to older generations building up wealth.
This in turn has caused a decline in the rates of return the technical paper by Simone Cima finds.
The analysis detailed how changes in demography has led to there being more older than younger people in many developing countries.
This has created a situation where the labour force is reduced relative to the size of the population, it says.
The consequence of this shift towards an inverted population pyramid is that a growing volume of wealth is becoming concentrated in older population groups, the research finds.
As a result, the rate of return on wealth has declined, which means over the longer term it will be more challenging for younger people to build up funds for retirement, the paper says.
This is despite the likelihood that younger age groups could benefit from higher wages than their parents or grandparents.
This will have the practical knock-on effect of ensuring those younger generations will have a lower standard of living, the analysis states.
The paper suggests that the situation could be made worse by the need to cover the financial consequences of people living longer, that will in turn result in individuals having a longer retirement.
In order to pay for this, the analysis suggests younger people may end up having to pay higher taxes.
They may also have to cope with reduced State pension payments.
The paper suggests an increased pension age could help counteract the situation.
It also proposes that research and development investment leading to improvements in technology might offset the decreases in wealth returns.
Financial education might also provide households with the understanding of the importance of investing and this in turn could assist with optimising returns on savings and wealth, it concludes.
