Employees will be able to work until State pension age under new proposal

Report also recommends allowing people to defer their pension until the age of 70

Minister for Social Protection Heather Humphreys says the commission ‘has unambiguously established that the current State pension system is not sustainable into the future’. Photograph: Gareth Chaney/Collins

Minister for Social Protection Heather Humphreys says the commission ‘has unambiguously established that the current State pension system is not sustainable into the future’. Photograph: Gareth Chaney/Collins

Your Web Browser may be out of date. If you are using Internet Explorer 9, 10 or 11 our Audio player will not work properly.
For a better experience use Google Chrome, Firefox or Microsoft Edge.

 

Employers will not be allowed to force people to retire before the State pension age under recommendations in the report of the Pensions Commission.

It suggests the Government should introduce legislation that would align retirement ages in employment contracts with the State pension age. It would allow, but not compel, a worker to continue working until they hit a State pension age that will rise slowly over the next two decades.

The proposal is one of a number made by the Pensions Commission, which was tasked with examining issues around the State pension age and its funding after the issue emerged as one of concern among voters at the last general election.

Launching the report, Minister for Social Protection Heather Humphreys said the commission “has unambiguously established that the current State pension system is not sustainable into the future and that change is needed”.

Budget increase

Asked how calls from backbench TDs for a €10 rise in the State pension in next week’s budget could be justified given the pressure the Social Insurance Fund – from which State pensions are paid – was under, she said: “We have said that if the cost of living has gone up and the cost of fuel, that’s something we’re certainly taking into consideration as we finalise the budget for social protection in the coming days.”

She noted the report had suggested that a commission on pensions – similar to the Low Pay Commission – be set up “so it’s increased every year with the cost of living”.

It has also recommended allowing people to increase their payment by voluntarily deferring their pension until the age of 70 at the latest. People choosing this option would have the right to continue to make PRSI contributions beyond the State pension age to maximise their State pension entitlement.

The Minister confirmed that the report recommends “a gradual increase in the state pension age over a longer time period and in smaller steps than previously envisaged”.

Ten of the 11 commission members backed this central recommendation to freeze the State pension age at 66 until 2028. It would then rise by three months per year so that it hit 67 in 2031, and by three months every two years thereafter to hit 68 in 2039.

The only member to dissent was the ICTU nominee who did not support any further increase in the State pension age.

The age at which people qualify for the State pension was previously due to rise to 67 at the start of this year, and to 68 in 2028.

Do you have a question?

Ask the Experts: Submit your Budget 2022
queries to our experts
CLICK HERE

The rate at which the pension is paid should be benchmarked and then indexed to allow for inflation, the report says. The maximum contributory pension is currently €248.30 a week but increases in the weekly rate are at the whim of the Minister for Finance and the Minister for public Expenditure at budget time each year.

Higher PRSI

It suggests that PRSI contributions will rise for everyone in the medium term, with self-employed people first to feel the pinch as their rate would rise from 4 per cent to 10 per cent of earnings.

The existing exemption from PRSI contributions for earnings of those aged 66 and over should be removed as should the exemption from PRSI of private and public sector occupational pension payments, it recommends.

It also recommends that the exchequer should cover the cost of providing retrospective contributions to carers who have been out of the workforce for more than 20 years due to their caring role, to cover any gap in their pension contribution record as a result of that care.

While recommending both auto-enrolment of workers in a private pension and the use of a total contributions approach in assessing entitlement to a State pension, it says this latter measure should be phased in over 10 years so no one loses out financially.

Under total contributions, one must have 40 years of PRSI contributions for a full pension, with a pro rata payment applying for anyone who has at least 10 years of stamps. It is currently being used alongside the more traditional but sometimes inequitable yearly averaging arrangement.

The Minister said the report would be referred to the Cabinet committee on economic recovery and investment for consideration “with a view to bringing a recommended response and implementation plan to Government, by the end of March 2022”.

Asked why the Government is waiting so long to make decisions she said the report was “complex” and there were “a lot of things we do have to consider. I think it deserves the time because this is going to impact on every single person in this country.”

This morning Minister for Finance Paschal Donohoe also said that the Government will not make a decision on the recommendations of the Pension Commission report until next March.

“We’re going to take the time to consider the issue and will refer it to an Oireachtas Committee” he told Newstalk Breakfast.

The changes recommended in the report would not immediately happen, he added.

The Minister said that the challenge was to provide the best benefits possible for people when they get to later life.

On the proposal in the report in relation to PRSI for pension holders on other income, Mr Donohoe said that he was “very much aware” of the difficulties of the recommendations.

“That’s why this report is of such value” as it highlighted what could happen if the Government did not make changes.

Sinn Féin’s spokesperson on Enterprise, Trade and Employment Louise O’Reilly has repeated her party’s opposition to proposals to raise the pension age in the Pension Commission report published by the Government on Thursday evening.

Ms O’Reilly said it had been “a bit sneaky” of the Government to publish the report after their “big announcement” on the Corporation Tax rate.

While she had not yet read the whole report, she told Newstalk Breakfast she was concerned about the proposals she had seen such as the State pension rising by three months each year from 2028 until it reaches 67 in 2031.

“Only a couple of months ago during the Dublin Bay South by-election pledges had been made not to increase the pension age” she said.

A number of things now needed to happen - there should be a full Dáil debate on the issue; pensions needed to be affordable and sustainable and there also needed to be a “broader conversation” on how to fund pensions and the auto enrolment process.

Ms O’Reilly said that workers should have a choice - to retire at 65 if they wished or to continue working until the age of 70.

The pension pot had to be sustainable and this could entail raising employers’ PRSI contribution and “all contributions”, she said.

Business Today

Get the latest business news and commentarySIGN UP HERE