No guarantee raising pension age would breach deficit, says Naughten

There is no guarantee that inreasing the State pension age beyond 66 would meet the potential deficit in funding that would be there by 2050 or 2070, Independent TD Denis Naughten has said.

The Oireachtas Joint Committee on Social Protection, Community and Rural Development and the Islands said in its report, published on Wednesday, that the State pension age should not rise beyond the age of 66.

Its view runs counter to the stance of the Pensions Commission which argued the pension age should rise in steps to 67 by 2031 and then to 68 by 2039. The commission’s report is currently being assessed by Government, which is scheduled to deliver an implementation plan by next month.

Mr Naughten, who is the chair of the Oireachtas committee examining the suggestions of the commission, told RTÉ's Morning Ireland "we're recommending that the pension age remains as is".

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“We’ve been quite critical in our report that the terms of reference given to the Pension Commission were quite narrow, that there are other aspects that should have been taken into consideration and that were not.

“Based on the evidence we’ve heard there’s no guarantee that increasing the pension age to 67, 68 or 69 would actually meet the deficit that would be there by 2050 or 2070.

“Because of that the Pension Commission did recommend four potential routes to go, we’re going with package three which is alterations to the PRSI rates and contributions to the exchequer would alter between now and 2050 to meet the shortfall.

"We're also saying that there are projections based on the assumptions as to what the workforce will be by 2070, some of those are based on the Fiscal Advisory Council which said that participation rates by 2050 will go from 62 per cent to 66.5 per cent, and the Department [of Social Protection] says there isn't room to go significantly beyond that, however, as we've seen from last week the CSO has published a report saying that participation rates are now at 65 percent because of remote working."

Mr Naughten denied that there would be a need for additional taxation on employees. “The committee looked at a number of funding streams that could be available, for example, the State pays out €2.4 billion per annum in tax relief on private pensions, five per cent of people who avail of that relief avail of 50 per cent of the benefit of that, so even standardising that at 33 per cent would be far more equitable, would be far more gender proof, but would actually reduce the liability the State would have and that would be a saving that could go towards the pension age.”

Several of the recommendations in the commitee’s report involve extra costs for the pension system and it offers no suggestion about funding beyond asking the separate Commission on Taxation and Welfare to examine taxes on wealth.

The committee report confirms it was informed by the Economic and Social Research Institute (ESRI) that, "in the absence of other policy changes, the pension age across the European Union (EU) would need to rise five years by 2030 to ensure that State pensions remain viable".

The State Pensions Commission report stated that the current State Pension is not sustainable in its current form and that changes are needed. It told the committee that the deficit in the Social Insurance Fund from which the State Pension is paid, could reach €13 billion in 2050 if no changes are implemented.

Mr Naughten also said the committee was proposing a ban on mandatory retirement ages.

“We believe that a substantial number of people will want to continue to pay PRSI contributions beyond their 66th birthday and that will have a significant impact on the drawdown of the pension,” he said.

The ban should not only include those starting in the workforce today but be retrospective for existing employment contracts, he added.

Mr Naughten said that there was some evidence, based on what had happened in other EU countries, that where people were forced to retire at 65 that it could have a detrimental impact on their health, which in turn put additional demands on the health service.

“Those aspects were not taken into consideration by the commission and we believe that they are very valid arguments in terms of the overall cost to the exchequer.”

Mr Naughten also said that people who had worked 40 years in manual labour should not be asked to work beyond 65 where they have made their full contributions.

“The flexibility should be there, that will have a significant impact by 2050 or 2070.”