Older workers and employers should be hit to fund State pensions, says Irish Fiscal Advisory Council
Companies and older workers should pay more towards future pension costs, the State’s budget watchdog has said.
In a paper out today, the Irish Fiscal Advisory Council calls for a separate pension reserve pot, funded in part by a PRSI hike and in part by windfall taxes on firms.
The Fiscal Council said the move could shave close to €1,000 off the average worker’s PRSI payments in the long term, and line the fund with up to €30.5bn in corporation taxes by 2025.
“Sound management of the pension system through a state pension fund with long-term goals and taking steps now to raise PRSI contributions would avoid much larger PRSI increases in the future,” said Fiscal Council chair Sebastian Barnes.
“Ireland has a historic opportunity to put the state pension system on a solid footing for decades to come and to put corporation tax windfalls to good use.”
Under the existing system, under-40s will effectively pay for the big tax increases required to fund future pensions.
The Fiscal Council favours a Canadian-style system, where a special PRSI rate is set for pension contributions and kept steady for the next 75 years.
Those PRSI payments would be funnelled into a new pension fund, along with “excess” corporation tax receipts, and then reinvested.
It would mean higher taxes on older workers now.
Under the current system, the Fiscal Council estimates that people earning an annual salary of €35,000 would pay an extra €1,900 a year in PRSI payments to fund future pensions.
Under new proposals, that extra payment could fall to just over €1,000.
Taxes on future workers would be even lower if the state pension age were raised to 68 instead of 66, as the Government has pledged.
The new fund would differ from the current rainy day fund, which is capped at €8bn and is not used to reinvest in assets.
It is similar to the former National Pensions Reserve Fund, which was depleted to pay for the 2009 bank bailouts and folded into the Irish Strategic Investment Fund in 2014.
Excess corporation tax – the amount the Government believes is not justified and could be at risk in future – currently amounts to close to €10bn a year.
Transferring all of those revenues to a new pension fund would net the Government €30.5bn by 2025.