‘Important’ to align Irish state pension age with occupational pension retirement age – ESRI

Ireland’s Economic and Social Research Institute (ESRI) has backed a proposal by the Pension Commission to align the state pension age with retirement ages in occupational pension schemes.

Speaking to the Joint Committee on Social Protection, Community and Rural Development, and the Islands yesterday, 10 November, ESRI economist, Dr Claire Keane, who works as part of ESRI’s taxation, welfare and pensions research programme, presented the organisation’s views on the recommendations by the commission.

Ireland’s state pension age was due to increase to 67 in January 2021, after an increase to 66 in 2014, but the plans have been put on hold while the commission examined the issue of the sustainability of the state pension. The ESRI believes that raising the state pension age is not the only way to address pension affordability; for example, it believes that increased pay related social insurance (PRSI) or income taxes or reduced state pension payments for current or future recipients would also help affordability.

“Along with the proposed increase in pension age, the commission proposes increases in the self-employed rate of PRSI. This would help equalise the treatment of income from self-employment and employment. They also propose other PRSI increases, all of which would help with the fiscal sustainability of the state pension,” Keane stated.

“Regarding the 2014 increase in pension age from 65 to 66 Redmond et al. (2017) examined this rise and found no evidence of a reduction in the retirement rate of 65-year-olds. Why was this the case? There was no real financial incentive to continue working until the age of 66, as retirees could avail of Jobseeker’s Benefit for one year.

“An additional issue is that of the retirement age stated in employment contracts and occupational pensions – these may take time to catch up with the policy change. The recommendation by the commission to align retirement ages in employment contracts with the state pension age is therefore an important one.”

She noted that since 2021, in recognition of the fact that some people’s contracts may require retirement earlier than the increased state pension age the ‘Benefit Payment for 65 Year Olds’ has been available to bridge the gap.

However, Keane warned that the benefit means it is likely to continue to result in people retiring before the increased state pension age. “Achieving improvements in the sustainability of the system via an increased state pension age is therefore likely to require reforms to such de-facto pension payments,” she said.

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