Ireland’s age-related spending will need highest increase in the EU, Department of Finance report shows

Total age-related expenditure will increase by 6 percentage points of national income over the next three decades, from 22pc of GNI in 2022 to 28pc by 2050. GNI, or modified gross national income, is considered a more reliable measurement than GDP in Ireland, due to distortion caused by the activities of multinationals.

Ireland currently has the second youngest population in the EU, but this is about to change. The country is going to have one of the largest proportional increases in the ratio of people over the age of 65 compared to those at work.

While there are now four workers to every pensioner, by 2050 there will be only two.

This will have a huge impact on the public finances. The department’s assessment is that, unless there are policy changes, age-related expenditure will increase by about €16bn a year.

“By 2045, Irish age-related expenditure is projected to overtake the EU and euro-area average, and by 2050 will reach 28pc of GNI compared to the EU and euro-area averages of 25.5pc and 26pc of GDP respectively,” says the report, entitled Population Ageing and the Public Finances in Ireland.

Healthcare currently accounts for the biggest share of age-related expenditure, but will eventually be overtaken by pensions. By 2045, annual spending on pensions could amount to 11pc of GNI, up four percentage points from 2022.

The difference between births and deaths is going to narrow in the coming decades. By 2050, it will be down to just 2,500, compared with 21,000 in 2022.

Lower fertility and increases in life expectancy are pushing up the median Irish age. In 2022, that was 39. By 2050, it is expected to be almost 45.

These reforms will not be sufficient to offset the fiscal pressures associated with an ageing population

The ageing population will slow economic growth, as the labour force expands more slowly. The Department of Finance’s analysis says the trend growth rate is set to slow from about 2.5pc of GNI in the short term to 1pc by 2050.

“Although a range of pensions and healthcare reforms have been implemented, these reforms will not be sufficient to offset the fiscal pressures associated with an ageing population,” the report says.

“The Future Ireland Fund is being established to help alleviate some of these pressures but it is clear that further reforms are needed. These could include reforms to the pension, healthcare and long-term care systems, restraint in non-age-related expenditure and/or tax increases.”

In a fiscal assessment, the department says the “optimal” approach would be a better alignment of the state pension with life expectancy. Increasing retirement savings is another part of the solution, such as through higher pension contributions.

According to the report, “High levels of public saving have an important part to play: running budgetary surpluses and accumulating financial assets in the Future Ireland Fund will partly offset some of the burden on future taxpayers.”