IRELAND - Speaking at the second UK & Irish Pensions & Investing Summit in Ireland, Irish minister for finance Charlie McCreevy said demographic projections indicate that the age structure of the Irish population is likely to undergo major change over the coming decades.
The proportion of persons of working age relative to those over 65 years of age falling from a current 5:1 ratio to less than 2:1 by the middle of this century.
He added: “Projections carried out for my department some years ago indicated that the Exchequer costs of public service and social welfare pensions would rise from 4.7% of GNP in 1999 to 12.4% of GNP by approximately 2050. This would be merely to maintain the existing level of service; any relative improvements would, of course, add further to the cost.
“It is for this very reason that the National Pensions Reserve Fund was established by me in April of last year. The fund’s establishment marked a radical departure in the management of the public finances and introduced a new strategic long-term element into budgetary planning.
The fund moves away from complete reliance on ‘pay as you go’ to part-prefunding of our future pension liabilities and involves the statutory setting aside and investing of 1% of GNP annually to meet part of the cost of future pensions. The Government may also make additional contributions to the Fund where circumstances allow.”
The assets of the Reserve Fund will be drawn down by future ministers for finance, commencing in 2025. The size of these draw downs will increase in line with the growth in the percentage of the over 65s in the population.
He said of employee pension schemes: “In order to encourage employees to increase their level of pension cover, I further improved the pension rules for employees in my most recent Finance Bill which became law last month.
“The existing limit of 15% of qualifying annual earnings for tax relief for contributions, including additional voluntary contributions, by employees into occupational pension schemes, has been increased to a limit of 30% of net relevant earnings, depending on the age of the contributor. This, in effect, increases tax relief to the limits at present applying to contributions to retirement annuity contracts by those not in occupational pension schemes.
New tax rules will also now allow pension schemes to provide benefits, if they wish, of up to 100% of the member’s possible pension on retirement to an individual spouse or dependant.
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