People should be able to postpone claiming the State pension at the age of 65 in return for receiving larger payments later, according to a major report discussed by the Cabinet on Tuesday, writes Mark Hennessy, Political Correspondent
The 100-page review from the National Pensions Board has not yet been published because Ministers wanted more time to consider its far-reaching recommendations.
The board was asked to undertake the review last February by Minister for Social and Family Affairs Séamus Brennan amid concerns that, because they have made no private arrangements, nearly half of all workers will be left to depend on State pensions only.
The report, which has been seen by The Irish Times, recommends that people who decide not to accept the State pension at 65 would receive a one-third higher pension at 70. Their estate would be compensated, however, for the pension forgone if they should die during that time.
People would not be forced to stay on at work if they did not want to but equally they could not be forced to leave by companies "before, say, 68 or 70 except for a small number of occupations" if they wished to continue working, according to the report.
Meanwhile, the report recommends that all workers should be able to claim tax relief at 42 per cent on pension contributions to encourage lower earners to take out pensions, but contributions should be capped to stop higher earners using pensions to avoid tax.
It also recommends that the State should offer to match workers' contributions into the so far unsuccessful personal retirement savings accounts (PRSAs) pensions, rather than offering tax relief subject to a maximum contribution.
Furthermore, savers should be able to withdraw up to 30 per cent of the accumulated PRSA funds before age 45 to pay for homes and so on - though only 20 per cent, rather than the current 25 per cent, of the final sum due at 60 could then be taken tax-free.
"In many cases, this would have very serious consequences in terms of the quality of life of those individuals," said the report.
The cost of State pensions is projected to rise from 4.3 per cent of gross national product next year to 7.7 per cent of GNP in 20 years and to 13.8 per cent of GNP by 2056.
These projections are "considerably higher" than estimates prepared for the Government just five years ago, reflecting "rapidly increasing life expectancy and dramatic changes to the pattern of migration", though the report adds that "favourable" demographics mean the State has a 20-year "window" to solve the problem.
The number of people over 65 is set to triple in the next 50 years, while pension costs are likely to "increase significantly" over that period.
Average life expectancy has risen by two years for men and by 1.6 years for women since 1991 and will increase by one year every decade from now on.
Special savings investment accounts savers should be encouraged to put the funds into pensions by exempting them from tax, the report suggests.
The pensions review team - which included a Department of Finance representative - divided on whether workers should be forced to take out mandatory pensions.
State pensions have risen by 88 per cent to €179.30 per week since 1998, while average industrial earnings have increased by 51 per cent to €560.77 during the period.
The Department of Finance, however, also objected to the review's majority recommendation that State pensions should be set at 34 per cent of average industrial earnings "as a minimum target".