Same old story? Not likely this budget

Benefits to pensioners have increased by 20 per cent in Ireland over the past five years, drawing criticism from the IMF and making them an obvious target for Government cost-cutting

With December’s Budget advancing, speculation is mounting as to how the Government will reach its €3.5 billion adjustment. While cuts in spending will be one element of its strategy, reducing benefits is also likely to figure prominently.

Heretofore a protected species, pensioners might end up in the firing line, especially given the assertion of the International Monetary Fund (IMF) earlier this year that benefits to pensioners in Ireland are too generous, having increased by 20 per cent since 2007.

Pensioners are currently entitled to a range of benefits, including the living-alone allowance, the national fuel scheme, supplementary welfare allowance and treatment benefit. But which ones are most expensive and therefore most likely to be cut?

Free travel

Introduced by Charlie Haughey during his term as Minister for Finance in the late 1960s, pensioners have since had the right to travel at no cost on buses, trams and trains. Those aged 66 and over who qualify for a State pension are automatically entitled to such a pass.

If incapacitated, they might also be entitled to a companion pass, which allows someone to travel with them, also free of charge.

In September, the Government announced a working group was reviewing the scheme. Abuse such as that highlighted recently by Irish Rail – which has issued 1,300 fines so far this year for misuse of the pass – is a key issue.

Annual cost

The scheme costs the Government €77 million a year, covering 726,000 pensioners, or as many as 1.1 million when companion passes are included.

Options

* Cut the scheme altogether and make pensioners pay for their travel. However, doing so would be unlikely lead to a boost in revenues for operators such as CIÉ, given that pensioners’ travel tends to be discretionary rather than necessary.

* Introduce a flat fee for use of the scheme.

* Means-test the pass.

* Reintroduce peak-hour travel restrictions: pensioners would have to pay to use public transport during peak hours.

Medical card

Of all the benefits pensioners currently receive, the medical card – to which about 95 per cent of those over the age of 70 are entitled – might be the most contentious. In 2008, the previous government tried to row back on its universality, only to find itself enmeshed in a “grey revolt”. It later backed down and introduced a generous means test, but after the furore it caused, this Government will be loathe to raise the issue once more.

Annual cost

€320 million

Options

* The IMF would like to see a standard means test across all age spectrums. This would push more pensioners out of the eligibility bracket, as the means test would be lower than the current income of €700 a week (or €1,400 for a couple), and reduce costs for the State. An alternative is to introduce more graduated medical-card coverage, such as a GP-only card.

Household benefits

This package has two main qualifying criteria: those over 66 in receipt of social welfare pensions or meeting a means test; and everyone over 70 regardless of means. It covers the following:

* One of electricity (normal standing charges and an allowance of up to 400 units of electricity per bi-monthly billing period), or gas (normal standing charges and an allowance for a certain amount of gas per billing period), or bottled gas (15 vouchers for a free gas cylinder between September and April and four vouchers from April to September).

* A free annual TV licence.

* Free telephone rental and €20.42 plus VAT towards calls in each two-month call period.

Annual cost

While the IMF acknowledged that the annual cost of this scheme at €0.5 billion is “small”, it noted that it is “rising rapidly” due to ageing.

Options

* Means-test the scheme.

State pension

A contributory pension of €230.30 a week, or €11,975.60 a year, is paid to about 80 per cent of pensioners in Ireland. It is not means tested, and is currently about 5 per cent higher than the non-contributory pension, which is paid to those who do not qualify for a contributory pension.

Given that those who get a contributory pension do so on the basis of meeting the PRSI contribution requirements, such pensioners are more likely to have other income, such as an occupational pension. In this regard, the IMF has suggested the contributory and non-contributory pensions could be brought to the same level.

While the Government may be reluctant to change such a headline rate, there is some precedence for doing so. Last year, it reduced the contributory rate for those with less than 48 annual PRSI payments to a top rate of €225.80, declining further depending on the number of contributions.

Annual cost

* €3.6 billion

Options

* Reduce the state pension to bring it to the level of a noncontributory pension, at €219 a week.

Tax treatment

Pensioners have a much more favourable tax treatment than others. Those over 66, for example, pay no PRSI, which is currently levied at a rate of 4 per cent, while pensioners can earn up to €18,000 for an individual or €36,000 for a couple without paying any income tax. They are also entitled to an age tax credit of €245 per person, or €490 per couple.

In addition, those over-70 pay a universal social charge (USC) at 2 per cent on the first €10,036 of income and 4 per cent on everything above this. Everyone else pays 7 per cent on income above €16,016.

Annual cost

The age tax credit for 2009 cost €44 million. For the same year, age exemption cost €82 million.

Options

* There are many options available to Government to try to claw back some revenues from pensioners, including introducing PRSI for pensioners, lowering their tax-free bands or increasing their USC.