Ireland’s pension system ranking has dropped to 18th place when compared with global peers, a new report shows.
The Mercer CFA Institute Global Pension Index compares 48 retirement income systems, covering 65% of the world’s population.
The Netherlands’ retirement income system retained the top spot on the list, with Iceland and Denmark remaining in second and third place.
The Irish system scored ahead of some other European systems such as France, Germany, Spain and Portugal, but behind Denmark, Finland, Norway, Sweden and the UK.
Our position dropped from 13th place last year, with the index value falling from 70.2 to 68.1.
The report attributes the fall to a decrease in the value of the State pension relative to the average national wage.
This is in addition to a fall in net pension replacement rates and a reduction in the household saving rate.
The report highlights the need for improvements to the retirement system, given falling birth rates and increasing longevity.
“Ireland’s retirement income system continues to rank highly in the Mercer CFA Global Pension Index, mainly due to strong adequacy and integrity scores,” said Caitriona MacGuinness, DC and Private Wealth Leader for Mercer in Ireland.
“The growing popularity of master trusts has supported Ireland’s strong integrity score, due to the professionally run nature of these schemes and the additional regulatory oversight they receive,” she added.
Ms MacGuinness said the introduction of an auto enrolment retirement savings system will improve Ireland’s overall index value in the future.
The scheme will mean that 800,000 workers will be automatically added into a private pension scheme, in addition to their State pension.
“This new regime should reduce dependence on the State Pension as the numbers saving for their retirement increases over time,” she added.
Today’s report states that retirement systems around the world are increasingly moving away from defined benefit (DB) plans and shifting to defined contribution (DC) arrangements.
The report looks at the opportunities and challenges associated with DC plans for both pension plans and individuals.
“The ongoing shift to defined contribution pension plans introduces many financial planning challenges, which are falling squarely on the shoulders of tomorrow’s retirees,” said Margaret Franklin, CFA, President and CEO, CFA Institute.
“DC plans require individuals to make complex financial planning decisions that may significantly impact their financial circumstances, and yet many individuals are not well prepared to manage the required decisions.
“The Index serves as an important reminder of the gaps that remain in providing long-term financial security and advice for individuals,” she added.