A cut in the basic rates of the State pension must be considered as an option to ensure its sustainability, officials at the Department of Public Expenditure and Reform have argued.
An expenditure review drawn up by departmental officials has expressed strong concerns about the future of expenditure levels on the State contributory and non-contributory pensions, and related universal benefit schemes for older people.
It has suggested that, without changes and in the face of demographic pressures, the State could have to provide annual increases in funding of nearly €200 million in these areas up to 2026.
And it has argued that, as part of structural reforms, a number of controversial options should be considered, including “the option to reduce base rates . . .in the context of ensuring the sustainability of the State pension scheme”.
The department paper said a reduction of €1 in the primary rates for the contributory and non-contributory schemes would generate savings of €19.7 million.
If a pro-rata reduction was applied to the increase for a qualified adult payment, a further €3.1 million in savings could be achieved.
Demographic pressures
However, it warned that as expenditure on the State pensions was likely to increase by €195 million a year in the medium term, “a cut of €8.50 per week on the two State pension schemes will only offset those demographic pressures for one year”.
Other pension reform options put forward by the departmental paper included scrapping the €10 per week top-up pension payment for people over 80.
It also suggested bringing forward the scheduled dates for raising State pension eligibility and abolishing the free TV licence.
It also proposed looking at applying the means test for fuel allowance to new recipients of the Department of Social Protection’s household package of benefits.
The expenditure review paper also urged that consideration be given to changing the free travel scheme for people over 66.
It said, for example, that there were strong arguments in terms of equity, economy and combating abuse for abolishing free passes for spouses and companions.
The alternative to structural reform of the pension schemes, it said, would be higher taxation or cuts to other areas of spending.
Expenditure review
The concerns of the Department of Public Expenditure and Reform officials were set out in a background economic analysis paper drawn up as part of the Government’s recent comprehensive review of expenditure.
The Irish Times sought the document under the Freedom of Information Act.
The department said spending on the contributory and non-contributory State pension schemes accounted for €4.93 billion, or 25 per cent, of the total cost of social protection services.
The paper warned of the strains growing demographic pressures were placing on funding the pension schemes and related benefit packages.
In the 10 years to 2013 the number of people receiving contributory or non-contributory pensions increased by 115 per cent to 420,000.
The department said the number of people aged 65 and over was projected to increase from 570,000 in 2013 to 855,000 in 2026.
The expenditure review paper of the State pension and related schemes said the views expressed were not the official views of the Minister or the department.
