Pensions can be an “emotive and indeed a difficult issue”, Minister for Social Protection Heather Humphreys said on Tuesday.
For any Fine Gael TDs — or indeed former deputies — who fought the last general election, the only response could be: you can say that again.
There is a widespread view within the party that its failure to control the election debate on the State pension age, which caught fire in February 2020, cost seats. Since the current Government came to power four months later, it has played for time on this politically volatile issue.
A commission on pensions was set up; its report was sent to the commission on tax and welfare for analysis — the new pension age was supposed to come in the spring and now has finally arrived in September.
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The reason for the delay is the Government has been caught between two equally pressing political problems: on the one hand, hiking the pension age was toxic. On the other, there is a yawning long-term black hole in the Social Insurance Fund which pays the State pension.
Cost-neutral
The reforms approved by Cabinet go some way to addressing the political issue. Cabinet sources were pleased with the result, praising Humphreys’ solution of a sliding level of entitlements that increase the longer you work beyond age 66. The Government says this will be cost-neutral.
However, as Humphreys says herself, the “cost of retaining a pension age at 66 will mean the need for PRSI increases in the future”. Just who will be hit with increased PRSI rates, at what level and when remains unclear — and it won’t be until next spring at the earliest.
ESRI economist and pension specialist Barra Roantree says this is a game of “kick the can down the road in terms of how they’re going to pay for that … We’ve been told PRSI will increase, but not on who or by how much.”
The Government has been told to increase PRSI on employers and the self-employed, and privately, Ministers believe widespread hikes are now dialled in, with an across-the-board increase of 0.1 per cent likely to raise in the region of €210 million per year.
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But not now, and potentially not for a while (although these choices don’t become more palatable with time). Indeed, there’s an absence of specifics on costs and timings that is counterintuitive given the scale of the changes and their importance in the Government’s own telling. This will make things tricky for employers and workers trying to plan for the future. Humphreys says an actuarial review to be completed this year will allow her to publish a roadmap for PRSI which will clarify things and allow for better medium-term planning, rather than relying on long-term projections.
It is possible previously sheltered areas of income may be exposed: Humphreys says PRSI on earned income among the over-66s will be considered. There will also be savings from switching to a model where everyone’s pension packet is based on their total lifetime contributions, away from the current system where average annual contributions are used alongside this approach. There will be winners and losers here, with 40 years of contributions needed to unlock full payments. The government says it will also save €43 billion in the time to 2047.
Other reforms include commissioning work on the issue of “forced retirement”, improving access to pension entitlements for carers and taking steps towards catering for those in physically demanding work — all were praised.
Missed opportunity
There was also criticism. Critics say the decision not to raise the pension age has cascading effects and that the Coalition has to be more explicit about the costs and choices involved. Chairman of the Irish Fiscal Advisory Council Sebastian Barnes told The Irish Times that the pensions system faces big “challenges on sustainability. Today’s decision, which loads resolving that on higher taxes so heavily, may not be credible.”
He said it would have been possible to make estimates of the cost sooner rather than later, that the decision not to raise the pension age is a missed opportunity and a “step backwards” with “very little information” provided about costs.
“These are big decisions. The Government should know how much things are going to cost before it proposes them.”
The current political climate is not welcoming to those preaching caution. But while Humphreys’ intervention may prove a deft political move, the question remains whether the pensions time bomb has been defused or deferred.
