Longer working lives make sense and save money

Working till you are older is good for you. That is the fundamental thrust of a new Government report on retirement.

What it does not say is that getting people to work for longer is a critical part of the Government’s drive to better balance the exchequer books.

The decision in March 2010 to announce the phasing out of the so-called “State Pension (Transition)” from the start of 2014, meaning no pension would be paid by the State until a person turned 66, was driven by numbers.

Getting people to work longer meant the State could put off the cost of paying out pensions; the corollary was that if people were working rather than retired, they would continue paying income taxes for longer.

The same argument holds true for the related decision to increase the age at which the State pension is payable to 67 in 2021 and to 68 in 2028.

Abolishing the transition pension was particularly important because this payment reinforced the traditional retirement age of 65. While a person is allowed to work while in receipt of the State pension, the transition pension was payable at 65 only if you gave up employment.

Even then, the Report of the Interdepartmental Group on Fuller Working Lives says the State will spend €7 billion this year on State pension and related welfare schemes. The figure is expected to jump to €8.7 billion in 2026, even with the deferred pension eligibility and assuming no increase in the rate at which pensions are paid. The bill for public service pensions will be a further €2.9 billion.

Reining in costs

It is not difficult to see why successive governments have been looking at ways of reining in the cost of pensions.

While State pensions are now payable later, people in the private sector are still, for the most part, retiring at 65.

In the public service, the rules vary depending on when you joined but for many of those nearing retirement – staff employed before 2004 – 65 remains the compulsory retirement age.

Working out ways to bridge the gap between retirement and the start of eligibility for the State pension was the fundamental purpose of this latest report.

None of which is to question the underlying validity of the campaign to persuade workers and their employers that the traditional notion of retirement at 65 must change.

Irish people are living longer and are generally in better health. At the same time, the numbers of people in the working age population is falling. All this means that a smaller number of working people are supporting ever more pensioners – by way of higher taxes or cuts to spending elsewhere – unless something is done.

And the benefits are not just financial. ESRI director Alan Barrett has noted on several occasions that research is questioning whether people are as happy in retirement as they seemed to expect.

“There is a growing realisation that work provides benefits in addition to payment – including social interaction, purpose and stimulation,” he told the MacGill Summer School last month.

New norm

A framework that facilitates working to, and beyond, the State pension age should be the new norm, the interdepartmental report states.

Given the robust and articulate way in which the report presents the case for working later in life, ultimately its recommendations are underwhelming.

Essentially, the proposals look to ensure that employers and workers are more aware of what rights and options are currently available, and that courses are developed to reskill older workers.

There will also be a review of barriers to public servants working up to the new, deferred dates for drawing down the State pension – an issue essentially for those employed after 1995 and before April 1st, 2004.

That’s it. All in all, they are singularly unambitious.