Means-test free travel and state pensions – report
THE entire state pension would be means-tested under proposals laid out in a radical new report to be published by the Government today.
It also raises the prospect of means-testing the free travel scheme and the allowance given to pensioners to help pay energy and telephone bills.
However, the report from the Organisation for Economic Co-operation and Development (OECD) also considers increasing pension payouts in the coming years.
The Irish Independent has learnt the radical report also proposes increasing the retirement age further, in line with increased life expectancy.
But it also says an "adjustment" – or increase – of pensions after years of cuts and freezes needs to be considered.
The report proposes a number of options to reform the state pension scheme, including:
• Introducing either a universal pension regardless of contributions or a lifetime's work, or else a means-tested pension scheme.
• Means-testing the household benefits package – the ESB, gas and telephone allowances – and the free travel scheme.
• Increasing or decreasing the state pension for late or early retirement, to encourage people to stay in work longer.
• Linking retirement age, which will be 68 by 2028, to life expectancy after that date. This means payouts by the State will not extend significantly.
• Bringing more "flexibility" in allowing retirees to combine their state pension and wages from work, to encourage people to stay in employment longer.
The means-testing of the state pension is one of the more radical reforms contained in the document, and would have to be costed carefully.
Given the attachment to the state pension, it is also likely to be hugely contentious politically and any changes – if the report's proposals were adopted – could be kicked down the road. The report by the Paris-based think-tank also notes Irish pensions are generous by international standards.
But sources said that its reference to "adjustments" was likely to mean increases rather than cuts as the cost of living rose. The hikes would be in line with any wage increases and inflation – and while this is unlikely to happen in the short term due to the economic crisis, it could be adopted if the economy improves.
The Irish Independent last week revealed that the report, commissioned by Social Protection Minister Joan Burton, suggested that up to a million workers without a pension would be forced to take one out for the first time. It notes than the changes to the state pension would be best done alongside these measures.
Workers, employers and the State should contribute 15pc of salary to the scheme, it said.
But when dealing with the State pension, it says Ireland should look at significant structural reform.
It says that at a "minimum", all contributions made by workers should be honoured.
However, it goes on to recommend two of the best options from three in the report – a universal basic pension or a means-tested basic pension.
The universal proposal would be financed by taxes, contributions or a combination of both.
However, it would be available to the entire population and would give everyone the same flat-rate payment.
This could be "complemented" with either mandatory private pensions or automatic enrolment into private pension scheme.
As part of this, the household benefits package and free travel scheme could be changed into a cash payment and merged with the pension or else means-tested and given to people who need it.
The other option is a single means-tested pension financed from "general revenue", but the details would have to be hammered out. This would also be complemented by mandatory participation in private pension schemes.