The Irish Government has published the Report of the Commission on Pensions which puts forward a number of proposals to address the sustainability of the State Pension. Many of the recommendations put forward by the Institute to the Commission form part of the proposals including the need for a coherent long-term strategy on State Pension reform, delaying any increases to the State Pension Age until 2028 in order to give workers time to plan for their retirement, abolishing mandatory retirement ages and introducing automatic enrolment as soon as possible.
Overall, the Commission recommends that any of the proposals that are progressed by Government are subject to further gender, equality and poverty proofing. The Commission also emphasised the need for “enhanced transparency and recommends ongoing communication relating to State pension reform to secure public understanding of the importance of sustainability, certainty and poverty prevention.”
A summary of the recommendations is provided below.
State Pension Age
10 of the 11 members of the Pension Commission recommended a gradual incremental increase in the State Pension age by three months each year commencing in 2028, reaching 67 in 2031 (10 years from now), with further increases of three months every second year reaching 68 in 2039.
Retirement Age
Retirement ages in employment contracts should be aligned with the State Pension age, by introducing legislation that allows but does not compel an employee to stay in employment until State Pension age. More generally, an employer would not be able to set a compulsory retirement age below the State Pension age.
Flexible Access
The Commission recommends that a person may choose to defer access to the State Pension up to age 70, and receive a cost neutral actuarial increase in their State Pension payment.
The Commission also recommends that a person can continue to pay PRSI contributions past State Pension age at their existing PRSI contribution rate (employees, employers and the self-employed) to improve their social insurance record for State Pension Contributory purposes.
The Commission also views it worthwhile in recognising long PRSI contribution histories by including a provision whereby those who choose to retire at 65, and have a long Total Contributions (TCA) record of 45 years, may receive a full pension.
Financing the State Pension
The Social Insurance Fund should continue to be financed on a pay as you go basis, and there should be a separate account in the SIF for State Pensions in order to provide transparency and the Fund’s ability to meet its commitments on an ongoing basis.
Annual Exchequer contributions to the ‘State Pension’ account of the SIF should be made rather than relying on Exchequer subventions only when the SIF is in deficit.
PRSI recommendations
- Maintaining the exemption from PRSI on all social welfare payments
- Removing the exemption from PRSI for those aged 66 years or over - the Commission recommends that all those over State Pension age should pay PRSI on a solidarity basis (Class K) on all income currently subject to PRSI
- Removing the exemption to pay PRSI on supplementary pension income (occupational and personal pensions, and public sector pensions).
- Increasing self-employed PRSI from 4 percent to 10 percent gradually and in the medium term, Class S PRSI rate should be set at the higher rate of Class A employer PRSI (currently 11.05 percent).
- Not increasing employers and employees PRSI until after 2030. After than the rate would increase by 1.35 percent by 2040.
Payment rate
The Commission endorses the principle of benchmarking and indexation of State Pension payments and supports the establishment of an independent standing body to advise the Government on pension rates of payment
Total Contributions Approach v Yearly Average
The Commission recommends that the full transition to a Total Contributions Approach and the abolition of the Yearly Average approach to calculating entitlement to the State Pension Contributory rate of payment should be implemented as soon as possible, pending the passage of necessary legislation and IT system changes.
Since 2019, both calculation methods have been in operation with the better rate from the two methods awarded. However, this has caused anomalies and unfairness in the system where people with fewer contributions can still qualify for further high levels of payment. Therefore, the Commission recommends that for those who are better off under the Yearly Average approach, a phased transition to the TCA approach should apply gradually over a 10-year period.
Long-term carers
Long-term carers are defined as carers who have been caring for more than 20 years. The Commission recommends that they should be given access to the State Pension Contributory by having retrospective contributions paid for them by the Exchequer when approaching pension age for any gaps in their contribution history from caring.
Increasing private pension coverage
The Commission also endorses the early introduction of an auto enrolment pension savings system, to improve retirement income adequacy for future pensioners.
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