Originally appeared in
Don’t rely on a state pension with these demographic trends
Published in The Sunday Times on August 9, 2026.
Financial planners are encouraged to frame a clients retirement planning without factoring in the state pension. While it can seem like a harsh assumption to use, it makes for a more robust financial plan. An alternative solution is to factor in the pension but use a rate for pension income growth which is less than that used for future inflation.
That’s a defensible assumption for a client who is past middle age, but I wouldn’t favour leaning on the state pension for a younger person who has thirty plus years to wait.
The contributory state pension, which was introduced in 1961, is unlikely to survive in its current form until its one hundredth birthday. The increase in life expectancies since its introduction, coupled with changing demographics means that its future is uncertain. As the birth rate and therefore the ratio of workers to pensioners continues to decrease, exacerbating the funding issue, and as Automatic Enrolment ramps up, it’s difficult to see the state pension continuing to be funded to the extent it is now.
Will it be reduced? Unlikely, at least in nominal terms. Will it become a means tested benefit? Hopefully not. Will future increases match inflation? Doubtful, which would mean that its value would reduce in real terms.
The replacement fertility rate in Ireland is estimated to be 2.1 children per woman. According to the CSO, fertility rates in Ireland during the 60s and 70s were always above 3.2 but today come in at around 1.5.
But we are only in the ha’penny place. Spare a thought for South Korea which has the lowest fertility rate in the world at 0.75. It is a remarkably low figure and a major concern for the government of South Korea on three fronts; economic contraction, maintaining a full-strength army to ward off the threat from North Korea, and future pension funding.
A low fertility rate can cause a momentum effect, because fewer births today mean fewer women of childbearing age tomorrow, which impacts the effect of any recovery in the rate.
Ireland’s demographic changes are partly offset by inward migration. On a recent holiday to South Korea I noticed that migration isn’t much of a feature there. The only place I encountered non-Korean’s was in major tourism hotspots such as the demilitarized zone and the shopping district in Myeongdong. Another thing I didn’t see very much of was children.
South Korea is culturally very different to Ireland. It’s almost a given that men get first preference for jobs so women are forced to choose between career and family and the cost of housing and education often means that these two things are, to some extent, mutually exclusive.
This binary choice between career and family has caused somewhat of a cultural backlash from young Korean women. Our tour guide told me that she and her friends want to be DINKS (double income no kids). The economic realities of raising a family are a big ask of anyone, so the ratio of working people to pensioners is likely to reduce further over time.
Much like Ireland needs to make changes to make our state pension sustainable, so too does South Korea. The state pension age is already being increased from its original age 60, and will reach age 65 by 2033.
The other obvious solution is to increase the fertility rate and South Korea has thrown the proverbial house at this. The parents of children born since 2024 can expect to receive 29.6m won or around €17,000 over the first 8 years of the child’s life. While the dial has been moved just a little in the right direction, it is still far short of where it needs to be.
One might wonder whether the Irish housing crisis which shows little sign of abating could cause a similar crisis to develop here. Living with parents for longer, delaying relationships and having children later are all plainly evident in Ireland, and all put pressure on the fertility rate.
While a number of scheme’s have been introduced to alleviate the housing crisis, the effect can’t been seen on the ground yet. If it isn’t sorted soon it has the potential to cause a death spiral of South Korean proportions. It might be the case that we have to throw the house (or houses) at this too, before it’s too late.
Eoghan Gavigan is a certified financial planner and the owner of Highfield Financial Planning hfp.ie
The material and information contained on this website is for general information purposes only. Neither the writer nor Highfield Financial Planning Ltd makes any warranty as to the completeness, accuracy or reliability of the information or the suitability or availability of products or services, referred to on the website, for any purpose. You should not rely on any information contained on this website as a basis for making any financial, legal, taxation or other decision. The information presented does not include all the considerations which are relevant to the topic discussed as to do so would render it un-readable. When considering any financial issue you should seek the advice of a suitably qualified adviser.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: The value of your investment may go down as well as up. You may get back less than you invest.
Warning: This product may be affected by changes in currency exchange rates.
Warning: The income you get from this investment may go down as well as up.
