Tuesday, 10 December 2019

Questions (624)

John Brady

Question:

624. Deputy John Brady asked the Minister for Employment Affairs and Social Protection further to Parliamentary Question No. 484 of 26 November 2019, the reason for the difference between gross and net cost estimated; and the breakdown of same. [51472/19]

View answer

Written answers (Question to Employment)

Increasing pension age, to moderate the increase in pension duration, is a means by which pensions can be made sustainable in the context of increasing longevity. In order to provide for sustainable pensions and to facilitate a longer working life, legislation passed in 2011 provides for an increase in the State pension age in three separate stages. In 2014, the State pension age was standardised at 66. This will be increased to 67 in 2021 and 68 in 2028. The Roadmap for Pensions Reform 2018-2023 has stated that future changes in State pension age after 2035 will be based on research into life expectancy.

This sustainability is vital, if the current workers, who fund State pension payments through their PRSI, are to receive a pension themselves when they reach retirement age. It is the only feasible solution which does not involve reducing pension rates to pensioners (which would result in an increase in the rate of poverty among older people), or reducing other significant areas of Government expenditure (such as other payments made by my Department).

It is estimated that the gross cost to the State Pension (Contributory) of postponing the increase in State Pension Age would be approximately €430m per annum, but the net cost is closer to €217.5 million per annum. The estimates factor in secondary costs such as foregone PRSI receipts and additional Household Benefit payments.

In this case, the estimated gross cost of an annual cohort of SPC recipients (in terms of State Pension Payments) to the SIF is offset by factors such as:

- Those who would continue working.

- Those who would be retired on an occupational / foreign pension.

- Those who would be on a working age claim.

- Those who would be a qualified adult on a claim.

It should be noted that this figure is per annum, and is expected to increase. It is not conservative to estimate that the additional cost over 5 years from 2021 to 2026 would be €1.5 billion.

I hope this clarifies the matter for the Deputy.