So, why am I hearing about pensions and time bombs again?
The Government this week published a series of reforms to how the State pension will work in the future. The most eye-catching is the introduction of a new sliding scale which will allow you to draw down bigger pensions — about €15 per week greater for every year you work beyond 66, maxing out at about €315 per week for those who choose to work to 70.
Anything else?
A new system will be introduced for figuring out how much your payment is going to be, based on your total contributions paid over a working life. There’s also improvements for long-term carers, and moves are being made to address the issue of “forced” retirement and improve early access for those who have arduous, manual jobs.
Why does this matter?
Pensions are complicated and, let’s face it, a little boring. Simultaneously, the misalignment between the size of the State’s pension pot and the demands placed on it is one of our biggest public policy challenges. As our young population ages and lives longer, fewer workers are available to pay into the Social Insurance Fund (SIF), the pot that funds the pension. Over time, the imbalances become mind-boggling: a deficit of €20 billion in the SIF by 2071, according to projections. To address the problem, difficult and divisive choices have to be made about who pays, when and how much. In addition to being very complicated, very important and very politically difficult, it’s also the ultimate slow burn, only coming to a head in many years. Which is probably the reason the political system has chosen to ignore it for so long.
[ Time will reveal if the pensions time bomb has been defused or deferredOpens in new window ]
Any other reason the politicians don’t like it?
Just the small matter of how plans to raise the pension age became a major political controversy during the last general election, which many in Fine Gael believe cost them substantially, playing no small part in Sinn Féin winning the largest share of the vote.
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But they rushed to address it after the election, right?
Not quite. There was a Commission on Pensions set up. And then its report was sent to another Commission on Taxation and Welfare. And it was sent to the Oireachtas Committee on Social Protection. And a Cabinet subcommittee discussed it. Minister for Social Protection Heather Humphreys then said the Government would publish proposals this March — so naturally they came out in September.
But it’s solved now, right?
Ahem. The Government basically has three levers to pull to fix pensions. It can increase the pension age (not happening), cut payments (non-starter) or raise taxes. Humphreys, in fairness, was absolutely clear that there will be PRSI hikes. However, the Government is stalling on the toxic question of who pays, when and how much.
The State’s spending watchdog, the Irish Fiscal Advisory Council, admonished the Government for releasing an uncosted but substantial set of pension reforms, saying younger people will have to pay significantly more PRSI to fund the proposals.
The Government, meanwhile, has said it will await the latest review of the SIF (which is in surplus, but is likely to plunge back into deficit in the years to come) before producing a PRSI roadmap next spring. So, while the reforms Humphreys announced this week probably suture the political wound of pensions temporarily, there is more pain and difficult choices to come. Some in Government believe the Coalition won’t have to hike PRSI in its lifetime. However, it does feel like a bit of a wait-and-see approach, which probably isn’t the best strategy when it comes to time bombs.
