The pressing need for lower-paid workers to make provision for pensions was highlighted once again by the publication of the Report of the Interdepartmental Group on Fuller Working Lives by the Department of Public Expenditure and Law Reform.
The report pointed to the impending rise in the age of eligibility for the State pension from 66 to 67 in 2021 and 68 in 2028 and the need for many of us to work longer to make up for that. The old State retirement pension which was paid from age 65 to 66 has already been abolished and workers forced to retire on their 65th birthday find themselves relying on Jobseeker’s Benefit of just €188 per week as opposed to the full State pension rate of €233. That’s a cut of €2,340 over a full year for people who can least afford it.
At the same time, there are reports that the Department of Social Protection is considering increasing the minimum income for a part-time worker to qualify for the full State pension from €38 to €70 per week. This would have a significant impact on many low paid workers and women workers in particular.
Most vulnerable
According to National Women’s Council of Ireland director Orla O’Connor: “The vast majority of low paid, part time workers are women, and without a doubt, these changes would hit them hardest. The priority should surely be measures to tackle the growing problem of low pay and precarious work, not proposals that penalise the most vulnerable workers.”
The priority is different for full-time employees earning between €25,000 and €50,000 a year, however.
Workers in that bracket would face a significant drop in income if they were to rely solely on the State pension in retirement. For example, an individual with take-home pay of pay of €600 per week would see their income cut by more than 60 percent on retirement when there is general agreement that the absolute minimum income on retirement should be at least 50 percent of take home pay.
That situation just gets worse for employees as their earnings climb towards €50,000. They are the people most likely to be among the 60 per cent of private sector workers with no pension arrangements beyond what the State will provide.
This has led to an interesting shared analysis between the Siptu trade union and Ibec, the employers' body. They both agree that instead of abolishing the USC the government should divert any cuts to it to fund a universal auto-enrolment pension scheme along the lines of those which have been successfully introduced in the UK, Australia and New Zealand.
Automatically enrolled
These schemes work by having employees automatically enrolled in them and having the ability to opt out under certain conditions. The key to their success is to have them pitched at a modest enough contributions level to make them affordable for the three parties concerned.
For example, in the UK the minimum contribution from April 2019 will be 8 per cent of salary with 3 per cent coming from the employer and the remainder coming from the state and the employee.
Opt-out rates in the UK have been extremely low to date - running at about 10 percent rather than the 30 percent anticipated when the scheme was launched.
The Department of Social Protection has been examining the auto-enrolment issue for several years and the current Minister has also indicated his support for such a solution. The question for hard-pressed low paid workers is when such a scheme might be introduced here.