LAST UPDATE | 20 Sep 2022
CABINET HAS GIVEN approval to a new “flexible” pension system that will see the pension age remain at 66, but will give people the option to work until they’re 70 in return for higher payments.
The new system, announced by Social Protection Minister Heather Humphreys this afternoon, will see people who want to work longer be able to do so, and as a result will get a higher pension of about 5% each year after 66.
But Humphreys said that in order to retain the state pension at 66, PRSI increases “will be needed in the future”.
The approved changes will come into effect from January 2024.
The current basic weekly rate for the contributory state pension, for someone who has made their full PRSI contributions, is €253.30.
This means that a person who continues working until the age of 67 would receive an additional €13 each week, bringing their pension to €266 a week.
It will see 68-year-olds given €281 a week, 69-year-olds given €297, and those aged 70 and over given €315.
This “flexible” approach will allow those who want to work on to carry on in employment, but will also allow people who have not built up enough contributions to receive a full pension to carry on working in order to reach it.
Speaking to reporters following today’s Cabinet meeting, Minister Humphreys said:
“For the first time ever, we’re going to give people a choice. Every job is different, and every worker is different. So we need to move away from the outdated ‘one age fits all’ approach to pensions. People now have the option to draw down their pension at any point between 66 and 70 and receive a higher pension payment for each additional year.”
“This new system will put the power in people’s hands and give them the choice in terms of what best suits their own circumstances,” she said.
A ‘total contributions’ approach will also be adopted and PRSI contributions by employers will have to increase gradually in order to pay for what has been described by the Government as “the biggest ever structural reform”of the Irish pensions system.
40 years of contributions will be needed to access the full state pension payment, but the minister said this is why her Department are bringing in this flexible approach. “If you reach age 66 and you don’t have the full contributions, that allows you to work until age 70 and add on to your contributions,” she said.
PRSI increase roadmap
“The total contribution approach means everybody will be treated the same and you’ll get your pension based on the total number of years you’ve worked and paid contributions. This measure will save €43 billion between now and 2017.”
The rate of PRSI will not be increased in this upcoming budget give the cost-of-living crisis and the pressures that businesses are already under with high energy bills.
“The social insurance system is in a healthy position. We are expecting a surplus in the form of close to €3 billion by the end of this year, so there is no immediate need to increase PRSI,” Humphreys said.
An actuarial review of the Social Insurance Fund will be completed later this year to “give us the most up-to-date projections” on the fund’s status, the minister added.
Based on the review, the Government will bring forward a roadmap on PRSI increase over the next ten years in spring 2023.
“While I think it’s important to be honest with people that PRSI rate increases will be named here for a pension system into the future, I’m also very conscious of the challenges that people are facing at the moment,” Humphreys said.
I want to assure people that PRSI increases will be modest and carried out on a gradual incremental basis.
Independent actuarial reviews of the Social Insurance Fund will be carried out every five years, with the Government able to adjust PRSI rates based on the most up-to-date information.
“We’re in a different time now where a fixed pension age belongs to another era. We’re living in different times, so I think it’s fair that people can take up the option and again, we’re not telling them they should do it. It’s their choice,” Humphreys added.
Long-term carers
In addition to the move to increase PRSI contributions and keeping the pension age at 66, Cabinet has also approved that long-term carers who have cared for their children for 20 years or more will get a State pension from 2024.
It has long been considered that these parents, while not working outside the home, are providing a valuable service to the State, and should be recognised for it.
“One of my key objectives on taking up the brief of social protection minister was to find a way to recognise the invaluable work of people, mainly women, who gave up their jobs to care for a loved one,” Humphreys said.
“Right now, the state pension system recognises periods of caring up to 20 years, but also requires a person to have at least 10 years normal or paid contributions to benefit from this recognition.
“In my view, that is not enough because a person who cares for a loved one over a longer than 20-year period might not be able to access the state pension system at all, and even if they do, the value of the pension might be reduced because their time spent caring is not fully recognised.
That’s wrong and it has to change, and that’s why Government has today agreed that we will now attribute full social insurance contributions to long-term carers so that they can access the state pension.
The minister has also brought forward a new payment for people who cannot work in their 60s, due the physical nature of their work over their lifetime, such as in construction.
This special payment will be higher than Jobseekers, it is understood.
Cabinet has also agreed that employees who have already signed up to a pension, by law, must receive an annual statement on their PRSI contributions that enables them to understand their entitlements.
The pension age became a major, and rather unexpected, political issue in the last general election after Fianna Fáil promised to postpone the rise to 67.
Fine Gael insisted on it going ahead, while Sinn Féin pledged to restore the pension age to 65.
“When it comes to the pension system, the challenge facing us as a government is that we’re trying to solve a 50 or 60 or 70-year problem. We’re trying to solve the problem today in spite of having just come through a global pandemic, Brexit and now we have a war in Europe and the worst cost-of-living crisis for decades,” Humphreys said.
“And I’m very conscious also that the public gave their verdict in the last election on increasing the pension rating, and we must respect that. So that’s the context the proposal which government has approved today.”
The Pension Commission report published last October said that the State pension age should rise by three months each year from 2028 until it hits 67 in 2031.
The report also recommended that it should then gradually increase to 68 by 2039.
However, the Oireachtas Social Protection Committee recommended that the State pension should be retained at its current age of 66 and that changes to employers’ PRSI contribution rates should be examined by the Commission on Welfare and Taxation to determine the fairest way to increase the rates.
Work Life Balance Bill
Separately, Children’s Minister Roderic O’Gorman will bring the Work Life Balance Bill to Cabinet today which seeks to introduce a new right to paid leave for victims of domestic violence of five days per year.
The Government will also develop supports for employers in implementing it and better support employees, it’s understood.
The Bill will also introduce new rights for parents and carers, including the right to request flexible working and right to leave from work for medical care of a child. The statutory right to breastfeeding breaks will also be increased from 6 months to 2 years.
The minister aims to have it passed by Christmas, with the new leave entitlements to be introduced on a phased basis.
With reporting by Jamie Mc Carron and Jane Moore
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