Pension pathway fraught with political risk

Government must address competing priorities on hot potato of old-age payment

 Moves to ban forcing people to retire before the State pension age will be welcomed by unions, but resisted by employers. Photograph: Tom Honan

Moves to ban forcing people to retire before the State pension age will be welcomed by unions, but resisted by employers. Photograph: Tom Honan

 

The guts of 100 years ago, minister for finance Ernest Blythe endured the wrath of the electorate when he cut a shilling from the old-age pension. For generations since, his ghost has been summoned whenever politicians stray too close to the tinderbox that is pensions. The most recent reminder of its potency came just before the last general election, when plans to hike the pension age to 67 were weaponised against Fine Gael as the wheels began to wobble under that party’s campaign.

This week’s report from the Pensions Commission outlines a roadmap for a divisive and tricky issue, experts say, based on sharing the increased costs of pensions between the State, workers, employers and intergenerationally. In doing so, Irish Congress of Trade Unions head of social policy and employment affairs Laura Bambrick says it moves away from filling the pension funding gap through the “quick, sharp increases in the pension age” that lit the blue touch paper in January 2020.

There is no shortage of enthusiasm for the report in Government, with praise for the way the process put together by Heather Humphreys has worked. Hindsight being 20/20, some wistfully observe that a similar approach put in place before the last election could have saved Fine Gael an awful lot of hassle.

That’s not to say the commission has identified a solution that will avoid tough choices. As ever, the way ahead is fraught with political risk. It recommends moving forward by taking action on four fronts: increasing PRSI rates, broadening the PRSI base, increasing the State pension age and formalising annual exchequer contributions to the State Pension Fund. It makes clear that relying on just one lever “would require such an extreme change that it would be impractical or even impossible to implement”.

Demographic timebomb

“This isn’t an a la carte menu,” says Bambrick. “You can’t skip and go straight to the dessert.” The political challenge now for the Government – which has six months to respond to the report – is figuring out a way that balances everyone’s competing priorities. It must also pull those levers in a way that addresses the pressing problem facing the State: the ticking demographic timebomb of the pensions issue, and the chronic underfunding of the Social Insurance Fund.

Each lever is likely to be resisted or supported by different parties and stakeholders along the way. Fine Gael, for example, is likely to be of the view that the commission went too far on the hikes for the self-employed, and didn’t recognise the higher universal social charge they pay or the infinitely more precarious nature of their work. Applying PRSI to unearned income like pensions is also likely to meet with resistance. Moves to ban forcing people to retire before the State pension age will be welcomed by unions, but resisted by employers. Some in Government observe that a lot of eyes are already being cast in the direction of cash raised from PRSI hikes. There are multiple demands coming down the tracks, not least a report on third-level funding.

The report is set to be considered by the Cabinet subcommittee on economic recovery and investment, chaired by Leo Varadkar. It will also go to the Oireachtas committee, and some elements relating to PRSI and the social insurance fund are being sent to the Commission on Taxation and Welfare, which has been asked to frontload this work and produce a view by February. It is possible that some other reforms improving the pension lot of long-term carers and the forced retirement issue could come first. An implementation plan is due in April, but expect plenty of horsetrading and scraps between now and then.

Pension age

Fianna Fáil spokesman on social protection Dara Calleary said he intended running a consultation within the party and coming up with a full response. “Clearly there’s strong views within the party about not raising the pension age at the moment, and that was the experience of the election,” he said.

Sinn Féin, meanwhile, is sticking to its policy of arguing for the restoration of the State pension at 65, unimpressed by the recommendation of a more gradual march towards 68 recommended by the commission.

Louise O’Reilly, the party’s enterprise spokeswoman, pointed out on Friday that this wasn’t endorsed by the Ictu representative on the commission. “They nearly all agree bar the person who’s there to represent the workers,” she said. After such a resounding win over the issue at election time, and riding high in the polls, there’s no political reason why Sinn Féin would or should change tack on this – an issue that probably opened doors for the party with older voters. Even if some of the pace has been taken out of this process, it will still be the Government’s to own at some stage.