Has Government the will to meet the State pension challenge?

Having refused to extend State pension age, failure to address how to fund it will impoverish already living future generations

Taxing baby boomers while they are still working is one way to reduce the demographic burden on younger generations in meeting the inevitably rising cost of Ireland’s State pension. That’s the view of the budgetary watchdog the Irish Fiscal Advisory Council (IFAC).

Ireland’s decision to retain the State pension age at 66, with the Government rejecting the recommendation of a Pensions Commission that it appointed precisely to consider the best options for the retirement payment, means costs are going to rise sharply over the next 20 to 25 years. But the Government has not yet clarified how it intends to fund that promise beyond some general vague commitment to outline a plan for higher PRSI rates sometime in the future.

The IFAC has now presented its proposal with some good news for the Government and some understated criticism.

It is noticeably sceptical on funding commitments to date, noting, alongside that vagueness about future PRSI rate rises, that the Government has no obligation to act on an actuarial review of the Social Insurance Fund pointing to a long-term pension funding gap which was published earlier this week. And it says a promised 10-year look forward at expected PRSI contributions is not looking nearly far enough into the future to properly assess the challenge.


On the plus side, setting PRSI at a new higher fixed rate to finance the pension system over the long term through a ring-fenced State Pension Fund, rather than year-by-year on the current pay-as-you-go approach, will, IFAC says, avoid the need for larger future increases in PRSI rates.

And it will cost less than feared. Crunching the numbers, it says that if we start now we can meet our commitments with a 3.5 percentage point jump in the combined social insurance payments of employers and employees, just half the 7 per cent estimated by the Pensions Commission.

“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,” says IFAC chairman Sebastian Barnes, one of the report’s authors.

The bigger question is whether the Government has the political will and courage to take the inevitably unpopular steps to put what IFAC calls the required “credible” funding in place.