Minister McGrath publishes reports on Population Ageing and the Public Finances in Ireland

The age-profile of the Irish population is relatively favourable at present, however this will shift substantially over the coming decades.
Ireland will experience one of the largest proportional increases in the ratio of people over the age of 65 to those of working age between now and 2050.
To put this another way, while there are currently around 4 persons of working age to those over the age of 65 in Ireland, by 2050 the equivalent figure will be around 2.
This will have significant implications for the public finances. An ageing population will dampen economic growth as the labour supply expands at a slower pace and growth in output will be increasingly dependent on labour productivity gains.
Government revenues are linked to growth and this will be one of the channels through which an ageing population will impact on the public finances.
The most important channel, however, will be on the expenditure side, with age related expenditure projected to grow by 6 percentage points of GNI* between now and 2050.
To put this in today’s terms, in the absence of policy change, an ageing population is projected to involve additional annual expenditure of over €16 billion (in 2022 prices).
The Future Ireland Fund is being established to inter alia offset some of these projected costs but further reforms will be required to fully address the fiscal pressures associated with an ageing population.

The Minister for Finance Michael McGrath today published reports on population ageing and the public finances in Ireland. This is the third triennial assessment of the budgetary costs associated with demographic change in Ireland. For this iteration of the report, the assessment is split into 2 papers, the first of which analyses Ireland’s shifting demographic profile and how an ageing population will weigh on the components of potential growth. The second paper explores the likely fiscal costs associated with increased demand for demographically sensitive components of public expenditure, namely pensions, healthcare, long-term care and education.

The key message from the assessment is that Ireland’s population is set to age rapidly in the coming decades and this will have significant implications for the public finances. While a range of reforms have been introduced, on their own these will not be sufficient to offset the fiscal pressures associated with an ageing population. The Future Ireland Fund is being established to help offset some of these pressures but it is clear that further reforms will be required including additional reforms to the pension, healthcare and long-term care systems, restraint in non-age related expenditure and/or tax increases. Given the scale of the challenge, the response is likely to require some combination of all these policy options.

Commenting on the analysis set out in the reports, the Minister for Finance Michael McGrath said:

“The analysis published by my Department today highlights the scale of the challenge an ageing population presents to our public finances. While it is, of course, a very positive development that people in Ireland are living longer and healthier lives, it is important that we note the significant implications these trends will have for the economy and the public finances.

In Ireland today, we have a relatively favourable demographic profile, the median age of 39 is the second youngest in the EU and we have the highest share of the population age 19 years or under and the second lowest share of the population age 65 and over. However, this is set to change significantly over the coming decades.

The ratio of the number of people of working age to those over the age of 65 puts the forthcoming changes in perspective. Today this ratio stands at around 4 but by 2050 it will fall to just 2. Ireland’s pay-as-you-go pension system means that the burden of financing an ageing population will fall on the next generation.

In overall terms, the impact of an ageing population on the public finances will be significant. Total age-related expenditure will increase by 6 percentage points of national income over the next three decades, the largest increase in the EU.

It is in this context, and to promote intergenerational equity, that the Government is preparing for the establishment of two long-term funds, the Future Ireland Fund and the Infrastructure, Climate and Nature Fund. These funds will save a portion of ‘windfall’ corporation tax receipts to help offset some of the costs associated with long-term structural challenges, including an ageing population.

Nevertheless, it is clear absorbing the costs of an ageing population will require additional policy responses. The alternative to this is to place a significant financial burden on future generations.”

Population Ageing and the Public Finances in Ireland – Changing Demographics and Population Ageing

Population Ageing and the Public Finances in Ireland – Fiscal Costs

Population Ageing and the Public Finances in Ireland – Summary

ENDS

Notes

This is the Department’s third triennial assessment of population ageing and the public finances in Ireland.

The projections contained in this assessment are based on those contained in the European Commission’s 2024 Ageing Report, which is underpinned by EUROPOP2023.