Pension Commission’s narrow recommendations due
Last November the Commission on Pensions was appointed by the government to examine the future of the State Pension age and whether – as originally scheduled – it would increase from the current age of 66 to 67 years from 2021 and to 68 years in 2028.
The legislation to raise the state pension age has already been repealed and a new law will need to replace it and, given the increasingly troubled political climate, it will be a brave coalition that decides to restate a later age of collection, even if that is the Commission’s recommendation this month.
No one was particularly happy when it was introduced at the ‘suggestion’ of the Troika over a decade ago as part of necessary economic reforms here; there will be less enthusiasm now to take on such a thorny issue, which unexpectedly dominated the February 2020 election, and resulted in every political party distancing themselves from what they agreed had to be done to help ensure the stability of this crucial state benefit.
Nevertheless, the Commission on Pensions invited ‘stakeholder’ submissions and they came from political representatives and private sector employers, from the investment community, trade unions and charities. They nearly all challenged the Commission’s narrow mandate by arguing – yet again - that what is really needed in Ireland is wider pension reform of a multi-tiered and convoluted pension system.
At polar opposites were the likes of Social Justice Ireland and Age Action, the formidable lobby groups for the elderly and people on the margins of society, and the Society of Actuaries of Ireland. The former argued that behind the cold numerical analysis of the pay-as-you-go State pension system are large numbers of individuals who have no other pension provision but this benefit; they favoured a universal retirement payment based on residency and reform of what they claimed was unfair tax treatment of private pension contributions that favour higher earners.
The Actuaries, meanwhile, supported gradually extending the retirement age on sustainability grounds and the unfairness of the system to younger workers who would otherwise be unlikely to enjoy similar benefits at their retirement. They reiterated their support for the introduction of the occupational auto-enrolment pension for all workers earning more than €20,000.
How the Commission on Pensions comes to its recommendations is of less interest, I suspect, to retirees turning 65 than what they can actually expect from the state this year.
There are quite a few permutations at play, but the two most common are what happens to people who are retiring from a private sector employer and for someone who is self-employed and chooses to retire at 65.
You have just turned 65 and are retiring from Company X
Baby boomers who turn 65 this year are probably the last cohort who will experience a lifelong career and valuable private occupational pension.
I have such a friend who started work as a junior manager with a large company in 1980 and was ‘invited’ to join the management pension scheme in 1984. When he retires in September, he will have 37 years of pensionable service and will have made up the shortfall for a maximum 40 years with an AVC (additional voluntary contribution) and a top-up purchase of PRSI contributions. His boss has even asked him to consider coming back to the other office for two days a week.
With his PRSI contribution record, my friend will be entitled to the new Social Benefit for Over 65s that was introduced this year to cover the gap between his mandatory occupational retirement age of 65 and the State Pension age of 66.
However, this €203 weekly payment is only being made to people who are fully retired or, if self employed, only earning a small amount of ‘residual’ income from other unrelated income. It is the equivalent of unemployment benefit but without having to sign on. This payment will continue until the retired person turns 66 or 67 and can then claim their contributory pension of €248.60 per week.
Mrs R is a reader in this position. She was a self-employed music teacher and performer for many years until she had to stop giving regular lessons a few years ago. Then the pandemic struck.
Being over 60, she was able to claim a small private pension but was turned down for the €203 a week Social Benefit for Over 65s because she had not paid in the required 52 self-employment Class S contributions in what is known as the ‘Governing Contribution Year’, that is, the second last complete tax year, which for 2021 is 2019. (She certainly had more than the minimum 156 contributions, the other condition for this benefit.)
She will have to wait until she is 66 (or perhaps 67) to apply for her contributory pension and hope that she has sufficient contributions to receive the full €248.60 weekly payment.
For full details of the Social Benefit for Over 65s see:
- www.welfare.ie or
- www.citizensinformation.ie
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