27 Sept 2022

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‘Flexible’ tiered pensions plan to come into effect from January 2024

‘Flexible’ tiered pensions plan to come into effect from January 2024

A tiered pensions system that will come into effect in January 2024 has been announced by the Government.

It will see 66-year-olds given 253 euro per week, 67-year-olds given 266, 68-year-olds given 281, 69-year-olds given 297, and those aged 70 and over given 315.

The issue of whether to increase the pension age has come up frequently since dominating the February 2020 election, prompting a U-turn on plans to increase it to 67 in 2021 and 68 in 2028.

The Pensions Commission had proposed to increase the state pension age by three months every year from 2028 and then to 68 by 2039.

A report published by the Social Protection Committee recommended maintaining the qualifying age for the state pension at 66 and introducing legislation to ban mandatory retirement clauses in employee contracts.

Following Cabinet approval on Tuesday, Minister for Social Protection Heather Humphreys announced the tiered plan, saying it will offer “flexibility”.

“It will represent a landmark reform to the state pension system in Ireland,” she said.

“We need to move away from the outdated one-age-fits-all approach to pensions.”

The minister said she is “very conscious also that the public gave their opinion in the last election on increasing the pension age and we must respect that”.

Ms Humphreys said keeping the pension age at 66 will result in pay-related social insurance (PRSI) increases, with a 10-year plan to do so set to be announced next year.

An actuarial review of the Social Insurance Fund will be completed later this year “to give us the most up-to-date projections” on the fund’s status, the minister said.

Based on this, the Government will bring forward “a roadmap for PRSI increases over the next 10 years” by spring 2023.

“While I think it’s important to be honest with people that PRSI rate increases will be needed to be able to pay for our pension system in the future, I’m also very conscious of the challenges that people are facing at the moment,” Ms Humphreys said.

“I want to assure people that PRSI increases will be modest and carried out on a gradual, incremental basis.”

The minister said independent actuarial reviews of the Social Insurance Fund will be carried out every five years, with the Government then expected to publish a 10-year plan to adjust PRSI rates based on the most up-to-date information.

Ms Humphreys said a 2017 review predicted the fund would be one billion euro in deficit by 2022, but “it’s in a much healthier position than was anticipated”.

“It’s going to be well over two million, possibly three million, in surplus,” she said.

When asked what guarantee there is that tax changes will be made to pay for the pension system, Ms Humphreys said: “I’m giving you the commitment today that we will follow through on it. There’s no doubt about that.

“We need to do this and we will do it. As to what future governments are going to do, I can’t say.”

A number of other state pension reforms will also be made.

The Minister is examining the option of extending the benefit payment to 65-year-olds who, following a long working life, may not be able to continue working into their early 60s – but said it would require Cabinet approval.

The Government has also agreed to attribute full social insurance contributions to long-term carers so they can access the state pension.

The current system requires carers with 20 years’ experience to also have at least 10 years’ paid contributions.

Ms Humphreys said it is “wrong” that people who have cared for their loved ones for over 20 years may not be able to access their full state pension.

A recommendation from the Pensions Commission to move to a “total contributions approach” for calculating individual pension entitlements has been accepted and will also begin from January 2024.

On the retirement age, Ms Humphreys said the Department of Enterprise is working with the Attorney General “to look at how we can strengthen the regulations around people not having to retire at the age of 65”.

“We have a flexible pension age, so now we need a flexible retirement age,” she added.

The budgetary watchdog the Irish Fiscal Advisory Council said previously the pensions issue is one of the main challenges facing Ireland’s public finances.

As it stands, life expectancy in Ireland is increasing by around a year every six years, leading to what is expected to be a 50% increase in the number of people reaching the age of 65.

Ms Humphreys said: “I think the important thing here is people are living longer and people are healthier. For example, in 1990, the average life expectancy was 74. A child born today can expect to live up to at the age of 100. So it’s changed considerably.”

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