Ms Roma Burke:

In your opening statement, Chairman, you stated that the population of Ireland is currently 5 million and is going to increase to 6 million by 2050. You also observed that the relative proportion of younger to older people is going to change. As the population ages, there will be more older people and they will be living longer. It is great news. The challenge of that is that at the moment the State pension works on a pay-as-you-go basis. That means that the current working population supports the State pension paid to older people. At the moment, there are approximately 4.5 working age people to every older person. As the population evolves and people gradually get older, that will reduce, so that by 2050 we estimate that the number of working age people to older people is going to drop to just 2.3 for each older person. This is a big challenge.

When we are looking at a big demographic challenge, we look at big levers to try to address the challenge. The two big levers available to us are fertility and migration. The committee found that fertility is quite slow-moving and is unable to react quickly enough to address this very significant challenge. Another lever is net inward migration. That can react in a much faster manner in order to address this problem. Putting it in the context of the total expected population in Ireland in 2050 of 6 million, we would need a working population of 7.2 million people in order to maintain the dependency ratio. That translates to an extra working population in the order of 3.3 million, over and above the official Central Statistics Office, CSO, figures. We concluded that in order to maintain the dependency ratio at its current levels, it would require actual fertility and migration rates that would be multiples of the current assumptions.

With more older people and older people living longer, the cost of the State pension is going to increase. There is going to be twice the number of older people by 2050. That means that the cost is going to double by 2050. At the moment, expressed as a percentage of modified gross national income, the cost is 3.8%. That is going to go up to 7.9% by 2050 and then it will continue to increase and will reach 9% by 2070. To put it into context, if we were in 2050 today, we would need all of the PRSI income just to pay the State pension.

We looked at how to address the increasing cost of the State pension. If we can get more people working, that would certainly help to address the challenge, and it does help, but the difficulty with that is that even if we have more people working within the working age population, the fact that the population is ageing in total means that as a proportion of everybody, the number of workers continues to fall. It is like maintaining a boat on the sea. You are maintaining your boat, but the tide keeps coming in and it is very hard for the boat as there is not much that the boat can do in that case.

We looked at other ways to address the challenge, such as increasing the State pension age. We looked at increasing the rate of employment of older people, facilitating them to work longer. We looked at net inward migration, which I talked about a moment ago. We also looked at higher economic growth and higher employment. While all of these levers help to address the challenge, we found that changing the State pension age had the most significant impact. Notably, helping older people to work also has a fairly significant impact on addressing the challenge.

The State pension has a role in poverty prevention. We did a lot of work on this. The committee concluded that the State pension plays a very positive role in reducing poverty among older people. We have already heard that without the State pension, poverty rates among older people would be in excess of 85%, and that is reduced right down to below 11%.

I will make a few points to help the committee with its discussion today. There is a range of poverty measures and one of them, which is used quite a lot, looks at poverty in relation to income. It compares what your income is to what is called an at-risk of poverty measure. However, the State pension target is pegged against an earnings benchmark – gross average industrial earnings or a more recent iteration of that. We must be aware that even if you are targeting an earnings benchmark for your State pension, there is a risk because the formula or the definition of poverty is related to income, but that does not move in the same manner as an earnings-related benchmark.

We then went on to have a look at increasing the State pension. When the State pension is benchmarked, it gets increased in future in order to give certain benefits such as maintaining people's purchasing power and keeping them out of poverty and so on. We looked at linking it to price inflation, earnings and other measures. We must be careful, because if we link it to price inflation, there is a risk that more people can fall into poverty. If we link it to other measures, there is a risk that the cost could escalate beyond what has been expected. It requires a careful approach going forward. That is a whistle-stop tour of what the committee did. We fed in a series of papers to the commission for consideration. I will hand back to Ms Feehily to continue.