Economy

Official Ireland getting jittery on pensions

Pensions will break the Irish economy if someone doesn’t grasp the nettle of reform

SIPTU’s STOP67 campaign to reverse the pension age increase to age 67 in 2021 and 68 in 2028, pictured in January were pensioners Christy Waters from Clondalkin and Pat Daly from Galway. Photograph: Nick Bradshaw

Sat Sep 18 2021 - 05:55

There is clearly growing concern in official circles around political stagnation over pension reform.

On Thursday, the Department of Finance published a paper from the Tax Strategy Group calling for significant changes to increase the amount of PRSI collected by the State. This group, chaired by the Department of Finance itself, does not, of course, make decisions on tax changes. But its thinking does in many ways set the agenda for the forthcoming Budget 2022 which Minister for Finance Paschal Donohoe will unveil next month.

Significantly higher rates of social insurance contributions for employers, their workers and the self-employed are being proposed from 2023. Alongside this will be a lowering of the thresholds for workers before they come into the social insurance payments net.

The immediate concern is the financial shock imposed by the Covid-19 pandemic which has turned a €3.9 billion surplus in the Social Insurance Fund, from which all welfare payments (including the State pension) are made, to a €3.8 billion deficit in just two years. But the proposed changes are not just a once-off measure to restore the fortunes of the fund; they would be here to stay. And the reason for that became apparent on Friday with another report from the department, this time on the issue of Population Ageing and the Public Finances in Ireland.

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It didn’t pull its punches. In language that was clear and unambiguous, it stated: “People are living longer, while fewer babies are being born in Ireland; in short, Ireland’s population is ageing.”

Ignoring that fact by refusing to change policy on the age at which people access the State pension was, it said, “unsustainable”. The cost of U-turning on previously agreed plans to raise the State pension age to 67 from this year, and to 68 in seven years time, would it said be about €50 billion in the longer term.

Age-related expenditure – pensions, healthcare and long-term care – would jump more than fourfold to €22 billion by 2050, it said.

All pretty bleak, and the figures are set against the background of a Pensions Commission report before Government that is understood to argue for a much slower pace of change than previously proposed.

The problem is that all political parties bottled it on pension reform when it became an issue in the last general election. And there appears still to be zero political will to drive through the sort of change required to have a noticeable effect on that mounting bill. Meanwhile the clock is ticking.

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