Thursday, 11 April 2019

Ceisteanna (194)

John Brady


194. Deputy John Brady asked the Minister for Employment Affairs and Social Protection the rationale for the decision to increase the pension age to 67 years of age in 2021 and 68 years of age in 2028; and if she will make a statement on the matter. [17003/19]

Amharc ar fhreagra

Freagraí scríofa (Ceist ar Employment)

It is well known that people are living longer lives.  For example, based on CSO figures, a 65 year old man in 1996 would have had life expectancy of 13.8 years (i.e. they could expect, on average, to live to 78.8), whereas by 2011 this had increased to 17.7 years, an increase of over 28%.  Over the same period, the life expectancy of a 65 year old woman increased from 17.4 years to 20.6, an increase of over 18%.  In other words, average life expectancy rose by over 23% in a period of just 15 years.  These changes are obviously very positive, but it is equally obvious that they result in significantly increased pension costs, if people continue to retire aged 65.

As a result of this demographic trend, the number of State pension recipients is increasing year on year.  This has significant implications for the future costs of State pension provision which are currently increasing by approximately €1 billion every 5 years, and more when recent rate increases are taken into account.  For example, the cost of my Department's pension payments rose from €7.1 billion in 2016 to €7.75 billion in 2018, an increase of €650m (or 9.2%) in 2 years.  For comparison, the Consumer Price Index rose by 0.5% in the 2-year period from January 2016 to January 2018, and by 1.1% in the period from December 2016 to December 2018.

This trend is not expected to cease.  In the coming decades, the ratio of people of working age to pensioners is set to halve, from about five workers for each pensioner, to about two and a half workers per pensioner.  This clearly has significant implications for the viability of the state pension system, based as it is on a pay-as-you-go basis.

The purpose of changes to the State pension age is to make the pension system more sustainable in the context of increasing life expectancy.  If there is no change in State pension age, the proportion of a person's life spent in retirement will increase to levels where current workers will no longer be able to support current pensioners.

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.  Therefore, the Social Welfare and Pensions Act 2011 provided that State pension age will be increased gradually to 68 years.  This began in January 2014 with the abolition of the State pension (transition) which was available to people aged 65 who had retired and who satisfied the PRSI qualifying conditions.  This standardised the State pension age for all at 66 years (it was already 66 for non-contributory pensioners, and for contributory pensioners who worked to 66 or older).  This will increase to 67 in 2021 and to 68 in 2028.  The savings from these increases will assist in maintaining the sustainability of the overall state pension system, and make it more feasible for the rate of payment to grow in line with prices and/or average earnings in the future. 

Jobseekers Benefit is payable subject to the person satisfying the general scheme conditions.  This entitlement is normally paid for 9 months (234 days) for people with 260 or more PRSI contributions paid and for 6 months (156 days) for people with fewer than 260 PRSI contributions paid.  Arrangements are in place to provide that jobseekers whose benefit expires in their 65th year can generally continue to be paid benefit up until pensionable age (currently their 66th birthday) provided they satisfy the necessary contribution conditions.  The jobseekers schemes are kept under review and any further changes, including entitlement beyond the 66th year, will be considered in that context.

It is important to remember that there is no legally mandated retirement age in the State, and the age at which employees retire is a matter for the contract of employment between them and their employers.  While such a contract may have been entered into with a retirement date of 65, in the context of the previous State pension arrangements, there is no legal impediment to the employer and employee agreeing to increase the duration of employment for one or more years, if both parties wish to do so.  In this regard, the Workplace Relations Commission has produced a Code of Practice on Longer Working and the Irish Human Rights and Equality Commission (IHREC) has published guidance material for employers on the use of fixed-term contracts beyond normal retirement age.

I hope this clarifies the matter for the Deputy.