Hiking up the pension age won’t solve Ireland’s pensions problem
If the Government gets its way, by 2028 Ireland will have the highest pension age across advanced industrialised economies. Ireland is currently just one of three countries across the OECD that plans to increase the State pension age to 68.
Entitlement to the state pension rose to 66 in 2014, it will rise to 67 in 2021, and the third increase is planned to occur in a decade’s time in 2028.
These policy changes were put in place in March 2010.
Now, in 2018, the current Government has set out a roadmap for pension reform over the next five years. Of course, we have been here before – the Green Paper on pensions was published in 2007 and we thought then that it would set in a train a series of changes.
The current roadmap has six strands: consideration of an auto-enrolment occupational pension system, measures to support the operation of the defined benefit scheme, public service pension reform, measures to encourage “fuller working lives” which entail deferral of state pension payment and measures to improve the management of private pensions.
The first and most imminent strand relates to changes to the State pension.
The Government is proposing a change that would see individual entitlement calculated on a total contribution basis, i.e. the total number of contributions over a person’s working life as opposed to a system which considers the number of years and the total number of contributions.
As the changes to the pension age were made in 2011, they are not currently under consideration in this roadmap. They should be.
In effect, the move to increase the pension age without comprehensive reform of the overall pension system amounts to putting the cart before the horse.
There is a strong argument to be made that trans formative changes such as the introduction of a second-tier auto-enrolment system cannot be made without comprehensively assessing all the factors relating to pensions and that includes the age of entitlement.
SIPTU representatives have highlighted that an increase in age will do little to resolve the overall affordability of the state pension system and unnecessarily disadvantage those in physically demanding occupations.
Already, we know that not all workers retire at the age of 65 or 66. Just over half (51%) of all those aged 60-64 participate in the labour market – are either in work or seeking work.
This reflects the sharp fall-off in the number of persons available for employment from the age of 55 so there is also a sizeable gap between the effective retirement age and the age of entitlement to the State pension.
Furthermore, an increase in the State pension age takes no account of the age when a worker actually starts making contributions.
There can be a considerable difference in contribution between those starting their working life straight from school and those entering at a later stage – often after many years of educational attainment and in many cases entering the labour market with a higher wage premium.
Countries such as France, Italy, Spain, Belgium have minimum contribution pension systems, thereby creating differentiated paths to retirement based on length of working life rather than age.
To date, many of our members have found themselves facing the prospect of a forced retirement at age 65 and then waiting a year to receive the State pension.
SIPTU organisers have been working with employers to collectively agree to an optional retirement age while also taking individual employment equality cases.
This problem is only set to swell if the issue of the age increase is not addressed in tandem with those other pension reforms.