Pensions timebomb ticks during election as parties battle for grey vote
Proposed increases in the age at which workers can claim the state contributory pension has dominated the general election campaign since the weekend, with Fine Gael and Fianna Fáil struggling to satisfy older voters’ concerns that they will be left in pension limbo after they retire.
Plans for a phased increase in the pension age date back to the financial crisis, when the then Fine-Gael Labour coalition voted to make the pension payable at 66 by 2014, rising to 67 from 2021 and 68 from 2028. As it stands, those who retire at 65 have to sign on for jobseekers’ payments until they reach the age of 66. Now that the subject has become an election issue, the various parties are pledging to either defer or abolish the changes, or at least mitigate the impacts of a higher pension age.
However, regular reports on the social insurance fund have warned that it will run out of money – because of simple demographics. On average, we are all living longer, thanks to better healthcare and improved lifestyles. This trend is only expected to continue, with a Central Statistics Office analysis published in June 2018 projecting that by 2051, the average life expectancy for women will increase to 88.3 years from 83.3 years in 2015. The average life expectancy for men is set to rise to 85.6 years in 2051 from 79.3 years in 2015.
Funding rising pension costs
The cost of the state pension to the public purse is poised to rise as more people become pensioners and claim the pension for longer. While this is generally perceived as a social good, there are consequences for all of us, both as current taxpayers and as future pensioners. As the raw cost of providing the state pension continues to grow, so too will the pressures on the delivery and expense of the health and social care supports required by an ageing population.
Conscious of these changing demographics, the Government had been planning an auto-enrolment scheme -- before the election was called this month – to step up pension provision across the workforce. The specifics of this national pension scheme had not yet been finalised, but this auto-enrolment scheme would essentially require both employees and employers to contribute to a supplementary pension plan. Because the State would also contribute to that pension, all employees – not just public sector staff -- would be deemed to have accumulated a reasonable amount of pension provision for their later years.
At present, some 40pc of Irish workers don’t have a private pension and will be entirely reliant on State supports when they retire, the CSO reported earlier this month. By contrast, there is almost 100pc pension coverage in the public sector.
Similar auto-enrolment schemes have already been introduced in other countries, including in the UK in 2013, in New Zealand in 2007, and in Australia as far back as 1992. While employers are rarely happy at shouldering additional costs, the experience in other countries has been that auto-enrolment schemes are a long-term success. In Ireland, the fall of the minority government has cast doubt over the future of an auto-enrolment plan.
Key considerations for employers
With this issue on the news agenda, employers may notice the older cohorts of their workforce discuss the rising pension age around the watercooler, though younger employees may be paying less heed to it. As a result, employers may want to at least consider the following actions:
Review employee age profiles to determine to what extent the increased pension age is relevant to staff. Be prepared for any questions they might ask.
Review any existing and planned pension plan provision and assess any likely impact on those plans based on changing proposals for when employees will be eligible to claim the state contributory pension.
Specifically, assess the likely impact of the proposed state-backed auto-enrolment plan on your business. This is especially the case if there is currently a minimal level of pension provision.