If I were to write a report titled How I Will Lead Ireland to Victory in the Next Rugby World Cup, you would either laugh or wonder whether I had taken leave of my senses. My first reaction when I saw the title of the latest report from the National Economic and Social Council (NESC) was to laugh. The report is titled Building a Virtuous Demographic Cycle. Ireland is as far away from that destination as I am from captaining the national team to victory in Australia next year. <\/p>\n
Ireland faces four separate trends that will eventually combine to break the state pension system. This prospect is too terrible for our ruling class to face. So instead we are fed a diet of technical reports that skirt around the topic and exhort us to do better, but which fail two simple moral tests. <\/p>\n
First, has this report honestly addressed the prospects of the most likely scenario? And second, does the report confront this key moral question: if the state pension system is insolvent, then is it not a grievous injustice to compel our young people to pay into a system from which they are unlikely ever to benefit? <\/p>\n
When it comes to morality, the simple overarching fact that dominates discussion in this area is that the state does not account for its pension liabilities<\/a> \u2014 despite regular accounting standards requiring private sector businesses to account for theirs. If someone in the private sector earns \u20ac100,000 a year, including employer\u2019s PRSI, and adds an estimated \u20ac30,000 to their eventual pension rights, the company must record total payroll costs of \u20ac130,000 for the year. And the company\u2019s pension liability on its balance sheet will be increased by \u20ac30,000 in respect of that employee. <\/p>\n Given the same facts, the public sector would record a payroll expense of just \u20ac100,000. It would not increase its balance sheet liabilities by \u20ac30,000. This racket is given a veneer of respectability by using the term \u201cpay as you go\u201d, as if a rational choice underpinned the failure to account properly for pension liabilities. <\/p>\n The state and those who run it believe that they are above the rules they insist we must obey. The state\u2019s pension accounting is not a choice based on morality. It\u2019s one based on raw power. We can get away with it; you can\u2019t. The implications of this grotesque misaccounting are stark. <\/p>\n The latest actuarial estimate for the state\u2019s pension liability to current and former public servants is \u20ac175.7 billion at the end of 2021. The latest estimate for the state\u2019s pension liability to current and former PRSI contributors is \u20ac470.7 billion, also at the end of 2021. Officially, the national debt is \u20ac208.6 billion, or about \u20ac38,600 per person living here. Add the state\u2019s pension liabilities and you get a total national debt of \u20ac855 billion, more than \u20ac163,000 per head. <\/p>\n This defective system could be kept going if the relationship between contributor numbers and contributions, on the one hand, broadly kept pace with beneficiary numbers and benefits, on the other. But there are four factors that will smash that relationship. Rather than scare the horses by confessing to the looming crisis, the system is hiding behind an avalanche of reports that will offer an alibi of sorts to those who produced them. <\/p>\n Factor one: people are living longer. They are receiving pensions for longer periods at greater expense to the state. In 1960, the year I was born, average life expectancy was 68. Today, it\u2019s just a shade below 83. Life expectancy has grown by 15 years. Over the same period, the pension age has been pushed back by one year. On average, therefore, people are drawing pension benefits for 14 additional years compared with the situation in 1960. <\/p>\n Factor two: fertility is collapsing<\/a>. It is estimated that, to keep the total population stable, women need to give birth to an average of 2.1 children. Ireland\u2019s fertility rate has been in a dramatic decline from more than four children per woman in the 1960s to just 1.5 as of the second quarter last year. <\/p>\n Factor three: non-EU and non-UK immigration<\/a>. We have long-term arrangements with the EU and with the UK allowing mutual migration. The resulting treaty obligations have worked exceptionally smoothly. It is people from the EU and the UK that account for most immigrants into Ireland. However, as a sovereign state, we have the freedom to vary the numbers arriving here under work permits and seeking asylum. We have used that freedom without any regard to the long-term fiscal and pension implications.<\/p>\n If immigrants are likely to be a net drain on the public finances over their lifetimes if they earn less than the average wage, we should not grant work permits for people earning less than, say, 120 per cent of the average wage. It is not the job of government to fix the recruitment problems of employers when they are free to recruit across the entire EU and UK. We could also make it harder for new arrivals to qualify for Irish citizenship. And we could impose much tougher restrictions on family reunification<\/a>. We have failed to do anything significant on these fronts. <\/p>\n Factor four: technology. I entered the following question into ChatGPT: how long might current technological research into improving health increase average life expectancy? The answer I got was startling. <\/p>\n In the near team, based on current advances into genomics, advanced diagnostics, regenerative medicine and monitoring technology, the program reckoned it might be possible to extend average lives by to 10-20 years. In the medium term, if we successfully translate early-stage research, that goes to 20-40 years; and in the long term, if all the anti-ageing research matures fully, that could be 40 years or more.<\/p>\n If this fourth factor fulfilled just half of the potential described above, it would blow Ireland\u2019s state pension system sky-high. With an inflexible retirement age and ever-expanding life expectancy, monies going out will balloon compared with monies coming in. <\/p>\n I was unfair to myself at the start of this column. I have a considerably higher chance of captaining the national team to victory at next year\u2019s Rugby World Cup than Ireland does of building a virtuous demographic cycle. Back to scrummage practice!<\/p>\n PS:<\/p>\n There doesn\u2019t seem to be a \u201clower volume\u201d button on President Trump\u2019s instrument panel \u2014 he seems to be on full all the time. This can be valuable for a leader of the opposition seeking to win power. But, in power, it can become a liability if voters fear that their key concerns are not being attended to and become weary of their leader\u2019s never-ending interventions. <\/p>\n Around the world, leaders are in fear of crossing the notoriously mercurial US president. It is notable just how muted were the reactions of European leaders to Trump\u2019s latest public coveting of Greenland<\/a>. There has been a lot of huffing and puffing about the international law implications of America\u2019s abduction of Nicol\u00e1s Maduro, the Venezuelan president (at least he was when he was abducted), but nobody\u2019s house has been blown down. International law is just a polite fiction contrived by Europe\u2019s graduate class to try to make people nicer \u2014 it\u2019s a worthy goal but it does not make international law a reality, like domestic criminal law. <\/p>\n