Taoiseach Micheál Martin has indicated that Government agreement on a plan to reform the State pension and wider retirement rules is close. The details of this will be important — and some have still to be agreed.
What does it mean for the retirement age?
The Government will attempt to ensure that employers do not force employees to retire before the age at which they qualify for the State pension — which is 66. New legislation is likely to ensure lower retirement ages are not put into contracts, though there will be allowances for earlier retirement in some jobs. The Government will also encourage employers to allow people to continue to work beyond the age of 66, if they want to. However, this will be up to the employer. In the public service, the minimum retirement age for people who joined after January 1st, 2013, is 66 and the mandatory age beyond which people cannot continue to work is 70.
What does it mean for the age at which people qualify for the State pension?
The decision has finally been made that this is to stay at 66 and will not increase. The State-appointed Pensions Commission had recommended an increase to 67 by 2031 and 68 by 2039. However, the Government will confirm that it will not increase the State pension age beyond 66.
What about the level of State pensions?
The commission had recommended that pensions should automatically rise each year in tandem with wages and prices. We don’t know if the final plan will have anything to say about this, but it is a vital point. Otherwise it is up to the Minister for Finance each year in the budget.
What about people who want to retire at 65?
The Pensions Commission recommended that a way be allowed for people to retire at the original retirement age of 65, but with a slightly reduced State pension. For example, this might mean retiring at 66 on the main pension level, currently €253.30, or going a year early and getting a pension of possibly around €240. This would be better than the transitional arrangements which currently apply for people who retire at 65. But a final decision here has still to be made.
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What about people who want to work on after 66 years of age?
These fall into two camps. First there are people who by age 66 have not worked long enough to qualify for a full pension, but would currently get a reduced amount. It looks like they will, if they want to, be allowed to defer drawing down their pension, work on up to a maximum age of 70, continue paying PRSI and thus increase the level of their pension entitlement.
The second group of 66 year-olds are those who have already worked long enough to qualify for a full State pension. Under a plan put forward by Social Protection minister Heather Humphreys, these people would be able to choose to defer drawing down their pension at age 66, continue to work and pay PRSI and qualify for a slightly higher pension when they do retire. While the Pensions Commission suggested this could be done on a cost neutral basis, there are understood to be concerns in the Department of Public Expenditure and some other arms of Government about this and it has not yet been agreed. Having a range of different pension rates would also be complicated and could lead to political pressure in time to pay higher levels across the board. So we will have to wait and see.
If it does happen, the Pension Commission suggested that the annual increase a person beyond 66 might expect would be in the region of 4 per cent annum. So, taking current payment rates, the choice might be to retire at 66 at a rate of €253.30 or retire at 67 on a pension of around €10 higher — €263. Higher rates would then apply at older age levels up to 70.
Will this mean higher taxes or PRSI?
The pension issue has come into the spotlight because of the ageing population and the increasing cost of providing pensions. The plan will mean some increases in PRSI rates, though not immediately it appears. The Pensions Commission also said that the exchequer should commit to put a certain amount of taxpayers’ funds each year in to the Social Insurance Fund — out of which pensions and other benefits are paid. At the moment the exchequer only tops up the fund when it is in deficit. So that would mean a generally slightly higher level of overall taxation. Sources say that the strong growth in employment and wages is supporting the Social Insurance Fund now, but before too long extra cash will have to start going in to make it sustainable in the long term.
When will we see a final plan?
We are told the Autumn. But given the length of time this has all taken so far we should not be holding our breaths.
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