A STATE PENSION Fund should be set up to support the State pension, the Irish Fiscal Advisory Council (IFAC) has said. 

The IFAC has warned the funding of the State pension will come under increasing pressure in the coming decade as the population ages.

It said that by 2050, the number of people reaching retirement age of 66 will be 50% higher than it is today. 

This requires a long-term approach to managing and funding the pension system, according to a new paper from Killian Carroll and Sebastian Barnes of the IFAC. 

Creating a separate State Pension Fund to support the State pension could help manage Ireland’s pension costs, the IFAC said. 

It said governments should be required to have credible plans to finance this fund on a “very long-term basis”. 

Last year, Tánaiste Micheál Martin, who was Taoiseach at the time, ruled out raising the pension age beyond 66. 

The IFAC has said that the current pay-as-you approach to funding the State pension means that today’s PRSI contributions are broadly used to meet today’s pension payments. 

However, it warned that that this approach will come under increasing strain as the population ages. 

It said that moving to a system where the PRSI rate is set at a constant rate to finance the pension system over the long-term, rather than year-by-year, would avoid the need for larger future increases in PRSI rates. 

The IFAC said this would be achieved by raising contributions from the baby boomers while they are working.

The paper explains that this would require the combined employee and employer’s PRSI rates to rise by about 3.5% over the current level of 15%. 

“Sound management of the pension system through a State Pension Fund with long-term goals and taking steps now to raise PRSI contributions would avoid much larger PRSI increases in the future,” Barnes said. 

“Ireland has a historic opportunity to put the State pension system on a solid footing for decades to come and put corporation tax windfalls to good use.”