IRELAND - Ireland's public debt will increase to unsustainable levels in the absence of pension and other reforms, argues the International Monetary Fund (IMF).
In a working paper on policy challenges of population ageing in Ireland, the organisation says the projected rise in age-related government spending as a share of GDP in Ireland over the next 40 years will be among the highest in the eurozone.
The paper suggests Ireland should therefore not rely exclusively on raising the social security contribution rate, but rather increase the retirement age, broaden the tax base, and raise indirect taxes.
The IMF has also criticised the Irish Pension Board's proposal to substantially increase the generosity of the Irish public pension system, stating: "If endorsed by the government, [it] would translate into an even steeper rise of age-related expenditure."
The organisation adds: "Some of the Pension Board proposals, if implemented, would change the nature of the public pension system [from one that attempts to prevent poverty] to one that attempts to ensure a desirable level of income."
Depending on the degree of public funding, the expansion of the pension system could have negative effects on the fiscal position and growth.
If the ratio of pension benefits to gross average industrial earnings (GAIE) remains broadly at the current level, the annual pension expenditure would increase by 6.5% GDP between 2005 and 2050, while health and long-term care expenditure is also projected to increase, says the IMF.
"In the absence of fiscal adjustment, debt would grow to unsustainable levels," the organisation warns, adding to safeguard fiscal saving, an increase in the annual contribution to the National Pension Reserve Fund (NPRF) should be considered.
IPE yesterday reported Mercer's most recent actuarial valuation of the Irish Social Insurance Fund found it will accumulate a €35bn deficit by 2061 if current regulatory frameworks on retirement age and contribution rates are maintained. (See earlier IPE story: Irish insurance fund to dry up from 2016 - Mercer)
Income to the fund, which holds all social insurance contributions to the first pillar pay-as-you-go system (PAYG), is projected to equal or exceed benefit outflow up to 2010.
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