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Sustainable pensions in Northern Ireland

Posted on November 02, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

In a previous Monday Blog I discussed some issues in relation to ageing population and future pension provision in the Republic of Ireland (Living Long and Living Well?). This Blog focuses on Northern Ireland where many of the same patterns, concerns and long-term questions arise.

Currently there are 300,000 persons in receipt of the State Pension in Northern Ireland.  Population projections issued by NISRA indicate a number of possible scenarios and population outcomes up to the year 2046. A relatively fast growth in population can be projected from its current level of 1.8 million to about 2.4 million in the middle of this century. An alternative scenario entails a fall in population.. Either way, the proportion of over-65-s will rise gradually and significantly over time with a fall in the ratio of working-age persons (ratio of persons aged 25-64 to all other persons) implying relatively fewer persons ‘at work’ to help support those who are retired. However, in fairness it must be pointed out that the retired have contributed to their pensions through taxes or specific pension contributions over a lifetime of work.).

So, in common with the Republic, Northern Ireland will see a gradual ageing of its population over the next half century.  Thankfully standards of health care and levels of income are better today than they were many decades ago and people are living longer than ever. Yet, there is a huge challenge to continually improve services as well as ensure an adequate living income for all persons including those who are retired from paid work.

In 2012/13, an estimated 45% of all employees in Northern Ireland paid into an employer sponsored or personal pension scheme of one sort of another. The corresponding figure for self-employed was much lower at 26% (data source: UK Family Resource Survey).  Chart 1 shows a broadly similar pattern of pension coverage between male and female employees with a somewhat higher proportion of the latter in occupational schemes (reflecting a high concentration of female employment in the public sector). However, it should be noted that there is a large number of females outside the labour force who have no work-related pension cover. Lone parents are a particularly vulnerable group as they tend to have a very incomplete paid work history and have very limited access to pensions, if any. This is why the State Pension is a vital part of total pensioner income with benefit accounting for just under 50% of total pensioner gross income in 2012/13. This figure is, obviously, much higher for persons who have little or no occupational pension income to draw on.

 Chart 2 shows the breakdown of pensioner gross weekly income in Northern Ireland into the main components with benefit accounting for around 50% over the last decade or so. A noticeable feature of the data is the rise in income from earnings from 15 to 22% between 2011/12 and 2012/13.

However, behind every ‘average’ there is considerable variation with some pensioner households subsisting on the minimum which is the State Pension (contributory or non-contributory].

The real value of pensioner income has taken a hit as a result of the recent recession but increased between 2011/12 and 2012/13 to reach a mean average level of £435 per week by contrast with £394 in 2003/04 (adjusting for price inflation). The corresponding figures for mean average net weekly income before housing costs are £371 and £341.

A useful point of reference is a comparison of median average net household income after housing costs and adjusting for inflation. This shows no change between 2008/09 and 2012/13 (source: Table S2.1 in the UK FRS). The median measure of the average shows us the typical income of a pensioner household in the middle (say with 49.5 households poorer and 49.5 households richer than the median household out of a total of 100). By contrast the mean average is pulled upwards above the median due to a long tail in the distribution as relatively few wealthier households receive very large amounts.

A key concern is how the incomes of those in retirement on age grounds stands up. My previous blog showed that, both in the United Kingdom and in the Republic of Ireland, the ratio of income of over 65’s to the average in each jurisdiction was below the OECD average. Similarly, the ‘net pension replacement rate’ as calculated by the OECD is considerably lower in Ireland and Britain than elsewhere.  The Republic of Ireland seems to follow the broad social and labour market norms and patterns of the UK with Northern Ireland conforming to this model.

Now is the time for a debate on how public services and income support will be provided over the coming decades. Productivity holds the key to this provision. However, it is vital that policy is factored in as a driver of income distribution over the lifecycle as well as across different social groups and household types.

Posted in: Living wageNorthern Ireland

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