The Commission on Pensions made a careful argument for reforming the State pension, and how it is paid for, on the basis of social solidarity. In its decision on how to respond, the Government has thrown this concept out the window. This is policy based on political pressure and who shouts loudest and not on a long-term strategic view of how to deal with the ageing population.
The commission recommended a gradual increase in the age at which people qualify for the State pension in the years ahead. This was in recognition of the cost of providing for a population that is growing older. To help pay for this, the commission said that there should be an annual, automatic transfer of cash from the exchequer to the social insurance fund and an extension of PRSI payments at a lower level to those over retirement age. Its recommendations are a reflection of the significant financial pressure the State finances will face in the future and an attempt to split the burden fairly across different income groups and generations.
The Government, instead, has refused to increase the State pension age, even gradually, and has put in place no firm proposal to pay for this, beyond a fuzzy promise that some level of higher PRSI will be needed in the years ahead, based on yet another review of the Social Insurance Fund. People will also be able to qualify for a higher pension if they choose to retire later than 66 years of age and up to 70.
The costs of this decision are not being made explicit, but will be significant in terms of higher PRSI and other taxes. Some within the electorate will welcome the decision not to increase the age of qualification for the State pension; the Government will hope that they won’t notice when the bill comes to be paid. The Social Insurance Fund is in better shape now than expected because of the strength of the jobs market, but the longer-term pressures are inevitable. The cost of today’s decision runs into the billions.
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The move is, above all, a blow to younger generations. The State pension system involves people paying tax now to fund today’s pensions – in this way it is not like a normal pension where people pay into a fund to provide for future needs. The Government is giving the good news today and is deferring the news of how much PRSI will have to increase until next year. No cost is being revealed – the Government has made the easy decision and left the hard one on the long finger.
This is a reflection of a wider political inability to face up to the trade-offs from difficult decisions, facilitated in part by a flood of cash to the exchequer in recent years and low borrowing costs. Sinn Féin, bizarrely, has suggested that the plan is a " Trojan Horse” for increasing the retirement age. It looks more like a cop-out which will cost taxpayers a lot of money in the years ahead.