As fears mount about a growing hole in the funding pot for State pensions into the future, an Oireachtas committee has rebuked recommendations by the Pensions Commission on the age for which people are eligible.
It argues there is no guarantee that raising the State pension age would deal with a looming crisis in financing the social security system. So, what does this mean for people retiring in years to come?
What happened on Wednesday?
A parliamentary watchdog – the Oireachtas Joint Committee on social protection – published a report recommending that the State pension age should not rise beyond the age of 66. TDs and Senators on the committee, who were examining previous recommendations on the State pension age by the Pensions Commission, insist it should remain exactly as it is.
Remind me what the Pension Commission said?
Last October, the commission – which was set up to carry out a review into the State pension age and how State pensions will be funded into the future – recommended the age at which people are eligible for a pension should increase from the current 66 to 67 by 2031 and then to 68 by 2039.
Why did they do that?
Because of serious concerns over how the system will be funded in the years ahead. People are living longer and, so, more money is needed from the State coffers to pay out pensions. Thirty years ago average life expectancy in the Republic for a woman was 78 and 72 for a man. It is projected that this will rise to 86 and 83 respectively over the next decade, then to 88 and 86 by 2051.
People retiring at 66 now, who would live an average life expectancy, can draw down a State pension for 20 years. Around a third of all workers rely solely on the this pension for their retirement income. Efforts to get workers investing in private pensions have had limited success.
How big is the predicted shortfall?
The Government reckons, if there are no changes to the current State pension system, then the Social Insurance Fund – which finances it – will be short €2.3 billion in just eight years’ time and €13.4 billion in the red by 2050. Workers in their mid-30s now – who are basically paying their PRSI to fund their parents’ State pensions – could be expecting to retire by 2050. The big question is where will the money come from to pay for their pensions.
Why is the Oireachtas committee disagreeing with the Pensions Commission?
It argues that simply increasing the age at which people are eligible for a State pension would not necessarily plug the projected hole in the Social Insurance Fund. It has taken issue with the terms of reference set out for the commission – what it was asked to do – and the projections and assumptions on which it based its recommendations, such as the number of people who will be working and paying into the PRSI system. It also said other relevant issues were not taken into consideration by the commission.
Do they have any better ideas?
The commission came up with several alternatives when reviewing the system. The Oireachtas committee has noted one of them, which is changing the PRSI rates and making alterations to contributions to the State purse. It denies there would be any need for more taxes on workers, but has suggested the Commission on Taxation and Welfare take a look at wealth taxes to help contribute towards the Social Insurance Fund.
So who makes the final decision on this?
Minister for Finance Paschal Donohoe said on Wednesday he anticipates the Government will make a final decision on the State pension age by the end of March.
But Mr Donohoe warned that the only money the State has is what it collects from citizens and borrowing and that there could be consequences for allocating more money for pensions. That could mean “there will be things we will not be able to do”.
Was there something about the mandatory retirement age?
Yes. While the commission recommended people be allowed work until they reach the eligible age for the State pension, the Oireachtas committee is proposing an outright ban on employers forcing employees to retire once they reach that stage.
Assuming that a “substantial” number of workers would like to continue in their jobs past pensionable age, the committee said this would mean more money being collected in PRSI contributions and cited evidence from Europe that suggests retirement at 65 has a negative impact on many people’s health, so adding a further burden to State funding through healthcare costs.
