Department officials warn on promises of pension increases

Promised increases in the State pension may not be affordable, officials from the Department of Social Protection have warned. Briefing notes for the new Minister for Social Protection, Leo Varadkar, warn that "demographic pressures and any increase in State pension will increase funding pressures" on the department. Staying within budget ceilings set for the department this year will "represent a considerable challenge", they say. The notes appear to suggest increasing the qualifying age for the pension beyond 68.

“State pensions account for the single largest block of social welfare expenditure,” they say. “In 2016, €6.97 billion will be spent on pensions, which represents 35 per cent of the department’s total current expenditure. Expenditure on pensions is increasing by approximately €1 billion every five years because of demographic pressures.”

The notes say a "substantial deficit" in the Social Insurance Fund (SIF) – which is funded through PRSI contributions – has been tackled through changes in PRSI rates and the abolition of ceilings and allowances. However, "financing State pension entitlements, which are largely driven by demographic pressures, will, in particular, pose major challenges over the medium to long term".

Increasing State pension payments is a key commitment in the Programme for a Partnership Government, published this month, which says: "We will increase the State pension and the Living Alone Allowance above the rate of inflation."

However, the department notes say, “given that weekly contributory pension payments account for 69.4 per cent of the total SIF fund expenditure in 2016, increases in . . . pension payments generally have a significant impact on the SIF”.

The officials warn: “The financing of such increases needs to be taken into account in any consideration of pension improvements.”

The majority of pension recipients collect the contributory pension, based on PRSI contributions over a lifetime. It is paid at a maximum rate of €233.30 a week. Some 362,622 people get this, plus 68,456 adult dependents, at a cost last year of €4.47 billion. The number of primary recipients is increasing by 5 per cent a year. There were 95,000 people receiving the non-contributory pension – €222 a week for those aged 66 to 79 and €232 for those aged 80 and older – on January 31st, at a cost of €955 million this year.

Other schemes include pensions for widows, widowers and surviving civil partners.

According to the partnership government programme: “Over the next 30 years, the number of people aged over 65 will double. At the same time, the number of us living to be over 80 is set to quadruple. We need, therefore, to be able to cater for the needs of a more diverse ageing population who want to live independent and active lives in their communities.”

The department briefing notes say the purpose of the State pension is to “provide an adequate, basic standard of living”. The notes state: “Increasing pension age, to moderate the increase in pension duration, is a means by which pensions can be made sustainable in the context of increased longevity.”

In 2014, the age of eligibility for the State pension was changed from 65 to 66.This will be increased to 67 in 2021 and to 68 in 2028.