We are embarking on the most radical change in the provision of pensions and welfare since David Lloyd George introduced old age pensions at age 70 in 1908 and the National Insurance Act in 1911. Starting at five shillings a week, it was the status quo we inherited at independence.
This year is the year Ireland becomes older and wiser. Social Protection minister Heather Humphreys successfully reversed out of the political cul de sac of raising old-age pension eligibility to 67 years. Instead, it remains at 66, but an increased pension is available to those who defer drawing it down. If you take your pension at 66 you get a maximum of €277.30 but if you wait until 70 you get €337.20.
Fine Gael’s tenure since 2011 is book ended by failure on water charges and Universal Health Insurance (UHI) and, now, successful delivery of a new higher pension rate for those who retire later.
The imperative after the economic crash was to widen the tax base. The principle of user charges, including water, was one aspect of this. Another was an insurance model for health, under which the State would pay for some, but most would pay something for themselves. The failure to roll out both represents a missed opportunity to build extra capacity for the State. The Local Property Tax (LPT) was a token gesture but is so low that it makes little impact on the cost of delivering services locally. The promise to widen the tax base has never been delivered upon.
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The proposal to raise the pension age to 67 was the issue that combusted in the last general election. The concerted campaign against it was a product of cynical politics, and deeply unfair to the young. As the population ages, they must support more dependents for longer. Many will also be paying a mortgage in retirement, and more will pay rent until they die. It is a grotesque trap whereby those who will carry the burden of paying for the State and public service pensions of those retired before them have had their capacity to save for their own pension undermined by costs of housing.
Critically, PRSI contributions will increase from next October and are legislated to continue rising over the next five years. Contrary to the delusional debate at the last election, there is no free lunch
A deferred but enhanced pension is one positive change and promised auto-enrolment for pensions is another. That ensures younger workers start a personal pension plan earlier and are incentivised by employers and the state to do so. Moving over the next 10 years from an average contribution to a total contribution model for pension eligibility rewards those who pay more for longer. Flexibility after age 66 means that people can still make contributions until they are 70. That suits women particularly.
Pay-related unemployment benefits are already in process. An enhanced top rate of a maximum of €450, or 60 per cent of your prior income, is paid to people with at least five years PRSI contributions. Critically, PRSI contributions will increase from next October and are legislated to continue rising over the next five years. Contrary to the delusional debate at the last election, there is no free lunch. A private pension pot of about €300,000 would be required to pay for a standard old-age pension, and more would be needed for most public service pensions. Longevity doesn’t come cheap.
[ Public sector pension bill surges 17% in three years to €175.7bnOpens in new window ]
In the context of a referendum on the role of women, family and care in the Constitution, change is coming for carers. From this month if you have been a full-time carer for at least 20 years you can get Long-Term Carers Contribution periods to help qualify for a contributory pension. The young across the board, and women at all ages, are more likely to be pension poor.
Pay-related maternity benefit is an obvious next step. Let’s see how political parties position themselves on that. What matters is not the benefits promised, it is how their payment is provided for. The modest PRSI increases Humphreys is introducing will generate €5 billion for the Social Insurance Fund over five years. That fund is in good health now, but the demographics are dead against us.
An older population living longer with more complex needs requires a different financial model. It is rapidly becoming ridiculous that nobody pays any PRSI after retirement
Ireland is now a social democratic state, with a debilitating demographic problem, dependent on an outsize share of the proceeds of global capitalism. The political retreat from the fiscal centre to accommodate the rapid growth of left politics – which in Ireland is allergic to tax raising with a broad reach – has increased risks that disproportionately fall on younger voters. Unfairly, they already carry more risk in a system where those of working age must pay more tax out of their income, so that all pay less tax based on other assets, and can largely avoid user charges.
The tax base must be widened and extended inter-generationally. More must be asked of older people with decent income and significant assets. An older population living longer with more complex needs requires a different financial model. It is rapidly becoming ridiculous that nobody pays any PRSI after retirement. There should be a Fair Deal model for care in the home, as well as in nursing homes.
For now, we are taking a first step towards a fairer contributory system that better rewards work both in the home and in employment. In terms of a European social democratic model, Ireland has put a toe in the water. Full immersion is a long way off.