People will have to work beyond the normal retirement age of 66 to sustain current living standards, Central Bank governor Gabriel Makhlouf warned yesterday.

He also said the ageing population, declining fertility and shrinking workforces will drag on EU employment growth in the coming decades.

Migration will offer only “a partial, albeit important, solution to the challenge”, he said.

Mr Makhlouf told an Organisation for Economic Co-operation and Development (OECD) meeting in Paris: “The point here is not so much to get bogged down in population or migration projection scenarios – which, as I said, are highly uncertain – but rather to highlight the extent to which migration can help mitigate the demographic and growth drag from ageing populations and falling fertility rates.

“This could allow time for governments to develop and implement other policies, mainly around labour force participation and productivity.”

He also said that with shrinking populations, increasing labour force participation is a necessary part of the solution.

And as the population ages, the ‘old-age dependency ratio’ in the euro area – that is the population aged 65 and over as a proportion of the working-age population – will increase sharply by 2050.

Mr Makhlouf said: “We also need to look beyond the traditional definition of working-age population as 15-60/64 years of age and boost participation in the post-60/65 population.

“In a world of longer lifespans and health spans, sustaining living standards will need people to work beyond what is currently considered 'typical' retirement age.”

The working-age population – those between 15 and 64 – is expected to shrink by about 1.5million people in the euro area, putting further pressure on people to carry on working for longer to support the economy.

Mr Makhlouf also said that in the face of unprecedented shocks in recent years, the euro area labour market has held up “exceptionally well”, but added that, looking ahead, some labour market cooling was expected.

While this reflects a cooling of labour demand, he said the employment growth slowdown also reflects demographic factors that were initially rather slow-moving, but are beginning to bite.

Mr Makhlouf said: “Between 2024 and 2027 the euro area working-age population is projected to fall by 0.7%.

“The longer-term impact is stark: the ‘old-age dependency ratio’ in the euro area is set to increase sharply.

“An older population with lower consumption and higher savings could place downward pressure on aggregate demand, limiting price growth in certain sectors.

“This aligns with the ‘secular stagnation’ hypothesis, which has argued that ageing societies are more prone to disinflationary forces.”

He added: “At the same time, a shrinking working-age population will tighten labour markets.

“This puts upward pressure on wages that feed into services inflation. Moreover, as older cohorts consume more healthcare and age-related services, relative price increases in those areas may become more entrenched.”

The State pension kicks in at 66 in Ireland. Current life expectancy is 84 years and six months for women and 81 and four months for men, giving people almost 20 years of retirement.