Pension system needs more than just pushing forward the retirement age

October 11 is Budget Day. Will income tax bands be widened to give ‘middle earners’ more cash in their pockets? Will retirees get another €5 increase in their weekly pension? Will the Universal Social Charge be merged with PRSI contributions to help boost the Social Insurance Fund from which state pensions are paid?
Each one of these budget actions has been flagged in recent months and while politics may have motivated the first and last idea they probably should be implemented if the government intends to raise the retirement age to 70 to ensure that everyone can expect some kind of income in their old(er) age. 

This story about an even higher retirement age was first mooted last July when the Economic and Social Research Institute (ESRI) produced a report on retirement reform that is now reportedly under consideration by the government in advance of next month’s Budget.
This isn’t the first time the retirement age has changed. In 2013, it went from 65 to 66. It was also decided that anyone born after 1954 could only claim their state pension from age 67 – that is from 2021 – and anyone born after 1960 would only be able to claim theirs, at age 68, starting in 2028. 
There were some protests at the time from the unions and lobby groups for older people, but nobody took to the streets and later retirement ages didn’t factor at all in the 2016 election.  
If an announcement is forthcoming that further extends the retirement age, say from 68 to 69 from 2035 and then up to 70 from 2042, I don’t imagine it will cause too much of a stir: most people (or politicians) don't get worked up about things that might affect them in 20 or 30 years.  

However, this time, the government might, sooner rather than later, have to address three problems that are associated with the delayed state pension: the fact that a large number of companies and public agencies continue to have a mandatory occupational retirement age of 65, the fact that an increasing number of workers in the private sector have no occupational or private pension and will rely entirely on the state pension and finally, that not everyone will be able to keep working until age 70.
Currently, mandatory retirement at 65 means that workers whose state pensions don’t kick in until 66, must apply for Jobseeker’s allowance of €193 a week for the 12 months before their state pension of €238.30 begins. 
With the Social Insurance Fund already in and out of deficit (mostly deficit) and unable to meet its obligations to pay state pension, let alone unemployment benefit, this cannot continue. 
By requiring employers to match their retirement age with the state retirement age – which could eventually be 70 – or by entirely compulsory retirement altogether – this will relieve the financial pressure on the Social Insurance Funds, from which all Jobseeker payments are made. 
In its report (and in many other pension reports commissioned by the state), the ESRI noted another urgent reform: the need for more private and occupational pension coverage. If the pension age is pushed forward to 70, it will give younger workers more time to save and invest in private, fully invested pensions and not rely (as over half of all retirees do) on just the state pension, which relies solely on current taxation to meet the annual €7.2 billion bill. (With the over-65’s growing by 100,000 every five years, that bill will be over €12.2 billion by 2021.)

Finally, if the government is serious about raising the pension age to 70, it needs to make provision now for the fact that not everyone will be able to work until that age. Those workers – certain tradesmen, medical services workers, local authority workers, key infrastructure workers (like ESB linesmen, rubbish collectors) – will simply not be able to keep doing such physically demanding jobs into their eighth decade. 
Finally, the ESRI also noted that saving the state (and what’s left of the private) pension system is going to need more than just pushing forward the retirement age. 
Social insurance contributions need to increase – this is where shifting the c8% average USC payment to the Social Insurance Fund may come in handy – and some benefits may have to be cut or even means-tested.  (Should pensioners who own a their own car still receive free or even untaxed travel cards?) 
At least 25 years ago, we were warned that the fuse on an enormous public and private sector pensions time bomb had been well and truly lit. It would be on the verge of exploding by the 2030s and if not addressed, could blow up the entire economy by 2050. 
Time is up. Raising the pension age to 70 won’t be enough. Continuing to raise the weekly pension without undertaking reforms…should make anyone under 50 extremely nervous.

jill@jillkerby.ie

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