Taoiseach Micheál Martin has indicated that government agreement on a state pension reform plan and broader pension rules is close. The details of this will be important – and some have yet to be agreed.
What does this mean for retirement age?
The government will endeavor to ensure that employers do not force employees to retire before the age at which they are entitled to a state pension, which is 66. for early retirement in certain jobs. The government will also encourage employers to allow people to continue working beyond the age of 66, if they wish. However, this will depend on the employer. In the civil service, the minimum retirement age for people who entered after 1 January 2013 is 66 and the mandatory age beyond which people can no longer continue to work is 70.
What does this mean for the age at which people are entitled to the state pension?
The decision was ultimately made to stay at 66 and not increase. The state-appointed Pensions Commission had recommended an increase to 67 by 2031 and 68 by 2039. However, the government will confirm that it will not increase the statutory retirement age beyond over 66 years old.
What about the level of state pensions?
The Commission had recommended that pensions should automatically increase each year along with wages and prices. We don’t know if the final plan will have anything to say about this, but it’s a key point. Otherwise, it is up to the Minister of Finance to decide each year in the budget.
What about people who want to retire at 65?
The Pensions Commission has recommended that people be allowed to retire at the initial retirement age of 65, but with a slightly reduced state pension. For example, this could mean retiring at 66 with the main pension level, currently €253.30, or leaving a year earlier and receiving a pension of around €240. It would be better than the transitional provisions that currently apply to people retiring at age 65. But a final decision has yet to be made here.
What about people who want to work after 66?
These fall into two camps. First, there are people who, at age 66, have not worked long enough to qualify for a full pension, but would currently receive a reduced amount. It seems that they will be able, if they wish, to defer their pension, work until a maximum age of 70, continue to contribute to the PRSI and thus increase the level of their pension rights.
The second group of 66-year-olds are those who have already worked long enough to qualify for a full state pension. Under a plan proposed by Social Protection Minister Heather Humphreys, these people could choose to defer their pension payments until age 66, continue to work and pay PRSI and be entitled to a slightly higher pension when they will retire. Although the Pensions Commission has suggested this could be done on a cost-neutral basis, there appear to be concerns within the Department of Public Expenditure and other branches of government over this and it has not yet been agreed. Having a range of different pension rates would also be complicated and could lead in time to political pressure to pay higher levels across the board. So we’ll have to wait and see.
If that happens, the Pensions Commission has suggested that the annual increase someone over 66 could expect would be around 4 per cent a year. So, taking current payment rates, the choice could be to retire at age 66 at a rate of €253.30 or to retire at age 67 with a pension of around €10 more – €263 . Higher rates would then apply to the upper age groups up to 70 years.
Will this mean higher taxes or PRSI?
The issue of pensions has been highlighted due to the aging of the population and the increase in the cost of pensions. The plan will lead to some increases in PRSI rates, but not immediately, it seems. The Pensions Commission also said that the Treasury should commit to paying a certain amount of taxpayers’ funds each year to the Social Insurance Fund, from which pensions and other benefits are paid. At present, the Treasury only contributes to the fund when it is in deficit. This would therefore result in a slightly higher general level of taxation. Sources say strong job and wage growth is currently supporting the Social Insurance Fund, but before too long additional cash will need to start flowing to make it sustainable in the long term.
When will we see a final plan?
We are told Autumn. But given how long it’s all taken so far, we shouldn’t hold our breath.