Greece and Ireland revamp state pensions

Two of the European countries most affected by the recent financial crisis, Ireland and Greece, have announced plans to reduce the cost of state pension provision – the former will increase the state retirement age from 65 to 68 while the latter will freeze state pension payments in 2010.

The Irish government published its National Pensions Framework (NPF) at the start of March which will gradually increase the state retirement age until it reaches the new ceiling in 2028. This will not provide any short-term relief to government finances.

The NPF is not slated to come online until 2014 when the state retirement age will be raised to 66. It also includes a plan to set up a UK-style auto-enrolment public pension scheme for all workers.
Ireland’s move is notable because it has one of the least generous state pension systems in the European Union, with replacement rates – the amount of pre-retirement income a pension provides – standing at 35%.

Nonetheless, demographic change means that according to the Irish government the cost
of funding this will triple to 15% of gross domestic product (GDP) by 2050.

Days after Ireland’s announcement Greece announced it will freeze pensions next year as part of a broader range of austerity measures that were planned to slash E6.5 billion (£5.8 billion) of the state’s cost base. “We are in a battle against time to satisfy the country’s loan requirements... a battle against time to show that we can pull this through,” government spokesman George Petalotis said in a televised address.

The Greek and Irish moves follow a broad swathe of initiatives among countries in the Baltic states and central Europe to bring second pillar pension contributions into the first pillar (Life & Pension Risk, February 2010) as governments use the crisis as a catalyst for pension system reform and others look set to follow.

France’s president Sarkozy announced he intended to tackle the country’s growing state pension problem “within the next six months” with negotiations with unions slated to start this month. Along with Spain, France faces one of the most severe demographic challenges in Europe, its old-age dependency ratio is predicted to almost double to 45% by 2060, while it already spends over 12% of its GDP paying pensions.

France has a range of proposals to reduce its pension burden but chief will be a potential increase in the retirement age, which currently stands at 60 – well below the current European average and five years lower than its economic rivals the UK and Germany.