• Current students
      • Student centre
        Enrol on a course/exam
        My enrolments
        Exam results
        Mock exams
        Learning Hub data privacy policy
      • Course information
        Students FAQs
        Student induction
        Course enrolment information
        Key dates
        Book distribution
        Timetables
        FAE Elective Information
      • Exams
        Exam Info: CAP1
        E-assessment information
        Exam info: CAP2
        Exam info: FAE
        Reasonable accommodation and extenuating circumstances
        Timetables for exams & interim assessments
        Interim assessments past papers & E-Assessment mock solutions
        Main examination past papers
        Information and appeals scheme
        JIEB: NI Insolvency Qualification
      • CA Diary resources
        Mentors: Getting started on the CA Diary
        CA Diary for Flexible Route FAQs
      • Admission to membership
        Joining as a reciprocal member
        Conferring dates
        Admissions FAQs
      • Support & services
        Recruitment to and transferring of training contracts
        CASSI
        Student supports and wellbeing
        Audit qualification
        Diversity and Inclusion Committee
    • Students

      View all the services available for students of the Institute

      Read More
  • Becoming a student
      • About Chartered Accountancy
        The Chartered difference
        What do Chartered Accountants do?
        5 Reasons to become a Chartered Accountant
        Student benefits
        School Bootcamp
        Third Level Hub
        Study in Northern Ireland
        Events
        Blogs
        Member testimonials 2022
        Become a Chartered Accountant podcast series
      • Entry routes
        College
        Working
        Accounting Technicians
        School leavers
        Member of another body
        International student
        Flexible Route
        Training Contract
      • Course description
        CAP1
        CAP2
        FAE
        Our education offering
      • Apply
        How to apply
        Exemptions guide
        Fees & payment options
        External students
      • Training vacancies
        Training vacancies search
        Training firms list
        Large training firms
        Milkround
        Training firms update details
        Recruitment to and transferring of training contract
        Interview preparation and advice
        The rewards on qualification
        Tailoring your CV for each application
        Securing a trainee Chartered Accountant role
      • Support & services
        Becoming a student FAQs
        Who to contact for employers
        Register for a school visit
    • Becoming a
      student

      Study with us

      Read More
  • Members
      • Members Hub
        My account
        Member subscriptions
        Annual returns
        Application forms
        CPD/events
        Member services A-Z
        District societies
        Professional Standards
        Young Professionals
        Careers development
        Diversity and Inclusion Committee
      • Members in practice
        Going into practice
        Managing your practice FAQs
        Practice compliance FAQs
        Toolkits and resources
        Audit FAQs
        Other client services
        Practice Consulting services
        What's new
      • Overseas members
        Working abroad
        Working in Australia
        Overseas members news
        Tax for returning Irish members
      • In business
        Networking and special interest groups
        Articles
      • Public sector
        Public sector news
        Public sector presentations
      • Support & services
        Letters of good standing form
        Member FAQs
        AML confidential disclosure form
        CHARIOT/Institute Technical content
        TaxSource Total
        The educational requirements for the audit qualification
        Pocket diaries
        Thrive Hub
    • Members

      View member services

      Read More
  • Employers
      • Training organisations
        Authorise to train
        Training in business
        Manage my students
        Incentive Scheme
        Recruitment to and transferring of training contracts
        Securing and retaining the best talent
        Tips on writing a job specification
      • Training
        In-house training
        Training tickets
      • Recruitment services
        Hire a qualified Chartered Accountant
        Hire a trainee student
      • Non executive directors recruitment service
      • Support & services
        Hire members: log a job vacancy
        Firm/employers FAQs
        Training ticket FAQs
        Authorisations
        Hire a room
        Who to contact for employers
    • Employers

      Services to support your business

      Read More
☰
  • Find a firm
  • Jobs
  • Login
☰
  • Home
  • Knowledge centre
  • Professional development
  • About us
  • Shop
  • News
Search
View Cart 0 Item

News

  • Home/
  • News
☰
  • News
  • News archive
    • 2020
    • 2019
  • Press releases
    • 2022
    • 2021
    • 2020
  • Newsletters
  • Press contacts
  • Media downloads
  • Podcasts Chartered Accountants Ireland
  • Budget day news

A simple solution to our pension problem

Sep 06, 2020
Originally posted on Business Post 6 September 2020.

One of the many unpleasant side-effects of the coronavirus pandemic is that it has pushed pre-existing problems which still need to be solved into the background.

Key issues in the February general election campaign have been dwarfed by the scale of the Covid-19 crisis. The pensions conundrum, specifically whether the retirement age should remain at 66, is a key example.

Last week, the government promoted the reduction in the standard rate of Vat from 23 per cent to 21 per cent. The cost to the exchequer will be some €450 million. Coincidentally, this is the same amount that it would cost to retain the retirement age at 66 rather than increase it to 67 next year.

In February, some politicians baulked at that kind of money being spent. Now, as can be seen from the August exchequer returns, €450 million is a relatively minor component of the cost of the national coronavirus response. Should we now also be spending this kind of money on managing future pensions provision?

The pensions challenge is fundamentally one of demographics. At present, broadly speaking, for every retiree there are five people in the workforce, earning and paying taxes to support their pensions and welfare. That proportion will drop over the coming years. Low birth rates in a shifting demographic prejudice our capacity to pay state pensions in the future.

State pensions are managed on a pay-as-you-go method, rather than out of an accumulated pension fund. The state pension is provided out of the social insurance fund which in turn is funded by PRSI contributions. It is topped up from general taxation from time to time whenever there is a shortfall. In 2018, more than 70 per cent of the social insurance fund went in pension payments.

The state contributory pension is particularly good value for the lower paid, because the benefits are not tied to how much PRSI has been paid in cash terms, but to how many times PRSI was paid over the working career. The state contributory old age pension is worth just over €1,000 a month irrespective of how much PRSI was paid in over the years.

This, of course, is only possible because of support from the exchequer. Over the last two decades, the state pension has increased substantially and is now a vital component of any retirement planning, as only about one in three workers in the private sector makes contributions to pension schemes.

There is currently a proposal to improve the level of private pension savings by introducing a process called auto-enrolment. The idea behind this is that all employees will be put into a contributing pension scheme whenever they start a new job with an opportunity to opt out, rather than relying on people’s prudence by opting in as is currently the case. Even for those who have opted in, and even allowing for the tax relief on pension contributions, private sector workers have a retirement savings mountain to climb.

As a rule of thumb, it costs about €30 of pension savings to buy €1 worth of an annuity on retirement in the current market. This means that a person who spent their career in the private sector literally has to retire as a millionaire to secure an annual private pension on retirement which could compare with the average wage. It is no longer obligatory to spend all of a pension pot on an annuity, but as we all are living longer, more money is needed to ensure a comfortable retirement.

Auto enrolment, if it is ever implemented, will be helpful for many people, but other techniques to help individuals provide for retirement are necessary. It is already possible for people to choose to make voluntary PRSI contributions to avail of contributory old age pension benefits. Perhaps we should now consider extending these choices. Rather than establish a whole new auto-enrolment system, there may be merit instead in offering enhanced state pension entitlements to workers who choose to make additional PRSI contributions over the course of their working lives.

The social insurance fund, which is already under threat from the current economic crisis, could use higher contributions now. There will be a payback for what in effect would be a different form of government borrowing, but that payback would go directly to the benefit of Irish workers in their future retirement.

Pandemics don’t come cheap. The costs of providing education, healthcare and senior care will remain higher than before the coronavirus happened, and long after a vaccine against this scourge has been delivered. A higher PRSI contribution option, rewarded by a better future state pension, would be a step in the painful process to which we must likely become accustomed in the future – paying more taxes.

There will be life after the pandemic. We need to look at ways to ensure that there is also life after retirement.

Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.
 

The latest news to your inbox

Useful links

  • Current students
  • Becoming a student
  • Knowledge centre
  • Shop
  • District societies

Get in touch

Dublin HQ

Chartered Accountants
House, 47-49 Pearse St,
Dublin 2, D02 YN40, Ireland

TEL: +353 1 637 7200
Belfast HQ

The Linenhall
32-38 Linenhall Street, Belfast,
Antrim, BT2 8BG, United Kingdom

TEL: +44 28 9043 5840

Connect with us

Something wrong?

Is the website not looking right/working right for you?
Browser support
CAW Footer Logo-min
GAA Footer Logo-min
CCAB-I Footer Logo-min
ABN_Logo-min

© Copyright Chartered Accountants Ireland 2020. All Rights Reserved.

☰
  • Terms & conditions
  • Privacy statement
  • Event privacy notice
  • Sitemap
LOADING...

Please wait while the page loads.