Saturday 24 August 2019

The State's roadmap reveals some serious twists and turns ahead for future pensioners


Criticism: The union has called for a reversal of changes which mean that after 2028 a worker will not qualify for the State pension of almost €13,000 until the age of 68. Stock picture
Criticism: The union has called for a reversal of changes which mean that after 2028 a worker will not qualify for the State pension of almost €13,000 until the age of 68. Stock picture

Anne-Marie Walsh

The Government launched a roadmap designed to navigate workers down a rocky road in retirement when the country was engulfed in a storm last year.

It seemed appropriate, given the dark clouds that it warned were gathering on the horizon as they prepared to draw down their pensions.

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The document painted some scary scenarios.

It said the current pay as you go pension system works so long as there are roughly four or more workers contributing to the Social Insurance Fund for every pensioner drawing from it.

But it predicted that the ratio of people of working age to pensioner will fall to about 2.3 to 1 in the next 40 years.

This presents "significant funding challenges", it says, in what appears to be an incredible level of understatement.

It goes on to say the Social Insurance Fund could clock up a potential deficit of up to €400bn over the next 50 years.

There are other frightening parts, including a suggestion that PRSI rates will be reviewed by actuaries and pegged to pension costs rather than decided at budget time.

The launch of the Roadmap for Pension reform during a weather catastrophe meant a number of potentially life-changing details went under the radar.

The jewel in its crown is an auto-enrolment scheme that promises to lift many workers out of penury in their latter years.

It seems like a saviour for private sector workers but it's been promised for so long that it's more like a last chance saloon.

Most of them have no pension compared with the staggering 90pc coverage in the public sector. If we're to believe the Government, it will finally be with us around 2022 and rolled out fully by 2027.

Given the likelihood of an election in the not too distant future, those commitments are not on very solid ground.

If the proposals go ahead as flagged, workers will pay a minimum of 6pc of their pay and employers will match that with the state contributing €1 for every €3.

Unions have suggested that workers bear less of the brunt, with a contribution from 1pc to 5pc on the first €20,000 and 5pc on the rest, with employers and the State coughing up a bit more - at 7pc for employers and €1 for every €2.50 from the State.

It will apply to employees aged between 23 and 60 earning €20,000 or more who are not in a pension scheme already.

At the same time, the State pension age is gradually being pushed out to 68 over the next decade.

There may not seem to be a connection, but the new scheme and pension age are inextricably linked.

This is because the auto-enrolment pension will only be paid in whatever form is opted for - as a lump sum or annuity or some other retirement product - at the same time as someone qualifies for the State pension.

There's another potentially significant drawback looming. The Government is also pondering that workers should have 40 years' of social insurance contributions to get a full State pension in the first place.

Under the current yearly averaging system it's possible to qualify with as little as 10 years of contributions.

Legislation is due to be ready for implementation on this new "total contributions approach" next year.

Given that we're no longer in the era of jobs for life and many people opt to travel the globe before starting careers, this could be a huge difficulty.

Irish Independent

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