Politics

‘Retiring at 66 has to go’: Taoiseach signals radical shake-up of pension system

Major changes to pension system on the way, Micheál Martin says during visit to Japan

Taoiseach Micheál Martin at a reception with the Irish community and Japanese partners in Tokyo, Japan
Taoiseach Micheál Martin at a reception with the Irish community and Japanese partners in Tokyo, Japan
David McNeill
Cliff Taylor
Sat Jul 23 2022 - 00:00

Taoiseach Micheál Martin has signalled a radical shake-up of Ireland’s pension system.

Speaking during his visit to Japan, Mr Martin said “broad agreement” had been reached between the coalition leaders and the ministers for social protection, public expenditure and health.

The changes will extend to granting “more flexibility and options [for people] in terms of when to take up their pensions” and that the “rigid, mandatory cut-off point” for retirement would end. “This idea of retiring at 66 has to go,” he said.

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However, the age at which people will qualify for the State pension will remain at 66, it is understood, with some increases in PRSI payments being indicated in years ahead to help pay for this. More flexibility will be offered in terms of the State pension, with people who do not have full entitlements when they reach 66, because they have not worked and paid PRSI for long enough, likely to be able to work on if they choose and accrue more credits before drawing down their pension. The Pensions Commission recommended that people be allowed to defer their State pension up to the age of 70 and continue working and paying PRSI, allowing them to receive a higher pension that they otherwise would have when they retire.

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“The world is changing; people are working longer in their lives,” the Taoiseach said, insisting the pension system should “reflect that” by offering incentives and better reflecting contributions and employment records.

Mr Martin said the Government” wants to ensure there is no discrimination against people because of their age. People are living longer, they’re healthier, working longer in their lives.”

He said retirement age also depended on what kind of work people were doing. “People have entitlements and contracts with private sector employers.”

Japan, which has the world’s oldest population, offers one signpost to the future. More than 29 per cent of the Japanese population is aged 65 or older and a quarter of all elderly Japanese now opt to keep working. The effective age of retirement for men in Japan is now close to 70, says the OECD. Similar changes are occurring elsewhere. The World Bank forecasts a shortfall in retirement savings in major countries of about $400 trillion (€391 trillion) by 2050.

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A report of the Commission on Pensions last October recommended that Ireland’s pension age should rise in stages until it reaches 67 in 2031, and 68 in 2039. Mr Martin has consistently said that the pension age should not go beyond 66, indicating that “modest” PRSI increases over time could be used to fund this.

The Commission also said that a contribution from the general exchequer each year would be needed to ensure that the Social Insurance Fund, out of which pensions and other benefits are paid, stays in surplus.

Government sources say that the position of the fund has been boosted in the short term by the strong increase in employment and wages in the economy. However in February, Minister for Social Protection Heather Humphreys gave notice of changes when she said the pension system was “not sustainable” in the longer term, because of the ageing of the population.

Mr Martin noted that the details of the new legislation and pension reforms would “have to be worked on”, but said “flexibility” was key. “There are a broad range of measures in the [pension] commission report that would ensure sustainability. There are different ways of meeting sustainability in Ireland.”

The Taoiseach denied that retirement age would keep rising. He said the pension age would not go up to 67 or higher and pointed out that there was a “whole range” of recommendations in the commission report.

Competing political promises over when someone should qualify for the State pension was a key battleground in the 2020 general election, when Sinn Féin pledged to lower the age to 65.

A planned hike in the pension age to 67 was deferred - it was due to happen last year - and instead the coalition established a commission on the matter, which recommended a gradual increase in the qualification age from 66 to 68 over the next 17 years. But this is now off the table as part of the new emerging plan.

Cliff Taylor

Cliff Taylor

Cliff Taylor is an Irish Times writer and Managing Editor