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when I'm 65

The State pension 'mess': Can we afford to roll back on the pension age?

Finance expert Dr James Stewart told that pensions age issue had become “a bit of a mess”.

THE PENSION AGE increase has been a long time coming, and has caught the government and the media off-guard in how it’s led the election debate this week.

People began raising the pension age anomaly during the first week of the election campaign: the pension age was increased from 65 to 66 in 2014 leaving a gap between the age at which most private workers retire (65) and the pension age (66).

The pension age is due to be increased to 67 next year, and 68 in 2028, further compounding the problem.

When Justice Minister Charlie Flanagan was questioned over it at the weekend, he indicated that the issue would have to be looked at; while Social Protection Minister Regina Doherty said on Monday that they would introduce a transitional payment but the pension age would still increase to 67 next year.

Fianna Fáil said that they would review the “pension time bomb” problem if they got into government: its leader Micheál Martin went a step further and said that they would stop the pension age increasing to 67.

The latest proposal suggests that Fine Gael would give those aged 66 a transitional payment to tide them over until they reach 67: this would be worth the same as the State pension. The party has yet to clarify the details of the proposed fix, including whether the proposal would be available for 65s.

Finance expert Dr James Stewart told that the pensions issue had become ”a bit of a mess”. He said that as it stands, people aged 65 are forced to lie to the State to say that they are available to work and willing to work, which are the conditions for getting the dole. 

Why is this a problem now?

When the bill to increase the pension age was first introduced to the Dáil in 2011, then-TD Joe Higgins said that “no worker knows what is coming”.

This perhaps explains that even though we’ve known the three-year increase was due, and we’ve already seen one year added to the pension age, that we’re only really having a national debate about the issue – as Higgins insisted we needed to – now.

That debate centres around two aspects: because of our aging population, we need to increase the pension age or else we won’t be able to afford to pay it in a number of years.

But: people may have planned their working life around retiring at 65, and now are being told they’ll have to sign on the dole for two years, which is worth less than the pension.

Something’s gotta give, so here’s a quick guide to what happens now, and what’s planned.

What happens when you reach 65?

Up until 2014, you were entitled to a State pension when you hit the age of 66, but were paid a ‘transition pension’ from 65 that was worth the same amount as the old age pension. 65 was also the age of retirement in most private contracts, so the two converged.

The weekly payment amount depended on whether you had built up enough PRSI: if you had, you were paid €248.30 up to 80 years of age, and €258.30 if you’re over 80.

A non-contributory State pension is a means-tested version of the above for those who don’t qualify for the full State pension because their PRSI contributions were too low.

That payment is worth €237 for those under 80 and €247 for those over 80.

Define: ‘Pension age’: The age at which you’re entitled to receive your State pension. You can still work and receive your pension.
Define: ’Retirement age’: The age at which you retire from your job. This can sometimes be compulsory, meaning a company compels people to retire at a certain age – this had been 65 until recent years.

But in 2011, legislation was introduced by the Fine Gael-Labour government, off the back of research initiated by Fianna Fáil, to increase the pension age incrementally.

This is because the cohort of people entitled to a State pension is increasing significantly each year, meaning if we don’t change something soon, we won’t be able to pay for people’s pensions in the future.

The plan was to increase the pension age from 65, to 66 in 2014, 67 in 2021, and 68 in 2028.

As part of plans to increase the pension age, the retirement age for public sector workers was increased from 65 to over 70, meaning people had the option of continuing to work until they hit the pension age. 

But private sector workers have been left in the lurch.

This meant that those who turned 65 after 2014, and who were on contracts compelling them to retire at 65, were forced to avail of the Jobseeker’s Benefit or Allowance until they reached the pension age at 66.

There are all sorts of complications with this: the Jobseeker’s Allowance is around €45 less a week than the State pension, that you physically have to be present to avail of it, and that you need to be means-tested to avail of it after 9 months.

For those workers who are engaged in manual labour, shift work, or who are too unwell to work beyond 65, the prospect of delaying retirement for them is much harder.

The pension age is currently 66, and the government has indicated during the election campaign that it will all-but roll back on plans to increase the age to 67 next year – though the details on this are sparse. 

The cost of changing the pension age

In Budget 2020, Fine Gael set out to provide pensions for 677,000 older people at a cost of €8.4 billion. This has been rising steadily since 2007, when it cost almost €5 billion. It cost €7.7 billion in 2018. 

Currently, the Social Insurance Fund, out of which pensions are paid, is in a surplus of €1.4 billion.

The government’s own figures indicate that this would cost €470 million a year, Fianna Fáil’s Willie O’Dea said.

The cost of not increasing the pension to 67 next year, and keeping it at 66, is around €220 million, Labour leader Brendan Howlin claimed.

The cost to move the pension age back to 65 would be €368 million a year, according to Sinn Féin.

But Dr James Stewart, an adjunct Professor in Finance at Trinity College Dublin, says that those figures cited by Fianna Fáil for reducing the age to 66 don’t entirely add up.

“I’ve heard people say that the costs of this is coming from €800 million… It doesn’t really add up.”

“How many people are eligible for the State pension transition? Based on previous years it’s around 20,000, so if they are all eligible for the full amount, which they won’t be, they get around €240 million or thereabouts.

“So if you consider that the majority of those people already entitled to the Unemployment Benefit, and minus that from that total amount, there’s no way it’s costing near €470 million.”

Stewart said that the changes to the pension age were introduced back during the financial crisis, when the Social Insurance Fund was in deficit, and that deficit was forecast to grow to €3 billion by 2019. That hasn’t happened, but the cost of paying pensions is still expected to increase as we go on.

So he says that it’s possible to “legitimately increase expenditures without jeopardising the viability of the fund”.

It’s estimated that the number of persons at State pension age and older will more than double from 586,000 in 2015, to 1,402,000 by 2055.

As things stand, life expectancy is 83.6 years for women and 79.9 years for men – the pension age is expected to be linked to this new life expectancy standard. 

The Department of Employment Affairs and Social Protection has been asked to confirm the figures cited by political parties, but did not provide figures at the time of publication.

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