Pensions reform should be high on everyone’s political agenda
Graying vote has set political parties a-jitter hence the ill-judged promises.
Pensions have became the unexpected issue of the election. And just for once, it is not the gray vote but the graying vote that has set political parties a-jitter. Tens of thousands of people in their 50s and early 60s suddenly became aware that when they retired from employment they would have to wait up to two years to start receiving their weekly State pension.
It is a particularly acute issue for the four in 10 private sector workers who have no private pension savings and who will rely entirely on the State pension for their retirement income.
But how did it come to this?
At first sight, it would seem that everyone was taken by surprise by a sudden unannounced change – the “news” that the qualifying age for State pension will rise to 67 in 2021 and 68 in 2028, with a jobseeker’s payment for those who retire now at 65 to take them to age 66 when the pension kicks in.
But, in fact, the rules on the State pension changed as far back as 2011. And the first stage of what is seen as a three-step process to change the rules on pensions kicked off in 2014.
At that stage, the transition retirement pension (a year-long payment from age 65 equal to the State pension) disappeared and people retiring at 65 had to apply for jobseeker’s benefit to bridge the gap to the pension – and, in the process, make themselves available for work, although it seems this was largely ignored by welfare.
Presumably anyone eligible for the State pension would qualify for jobseeker’s benefit. The problem with jobseeker’s is that it lasts for only nine months: after that, applicants are subject to a means test.
Apart from the potential loss of income, many people who have not relied on welfare during their working lives objected to having to go, as they saw it, cap in hand to the State when they had contributed to their pension for 40 years or more.
In 2021, the situation gets worse with the gap moving from one year to two and people relying on means-tested allowance for even longer.
So why was nothing done?
It’s not quite true to say that nothing was done. Successive governments have planned all manner of reform of the State pension. The key word here is planned. There have been myriad reports, several public consultations and many, many promises of action. Unfortunately none of it has yet got on the statute books and become law.
The problem for the politicians who would vote reforms through is the same as it is for ordinary workers and savers: no one cares to look far enough ahead to consider pensions a priority. Governments work in five-year cycles – at best. And there are very few votes in pensions – or at least, there were until now. One of the main reasons for this is that to solve what all reasonable analysis foresees as the looming pensions crisis, we have three choices: to work longer; pay more Pay Related Social Insurance (PRSI); or accept a lower, or even a means-tested State pension.
None is an easy sell to voters.
Basically, State pensions are paid from the Social Insurance Fund. PRSI payments go into this fund and welfare payments, including the State pension, are drawn from it.
While the fund has recently returned to surplus – largely on the surge in employment in recent post-crash years – every actuarial analysis of the fund says that the increasing number of older people as a proportion of the population means that the fund will be nursing deficits of hundreds of billions of euro as the century proceeds.
As former pensions ombudsman Paul Kenny explained recently, the rationale for raising the pension age was increased life expectancy – those who reach age 65 in 2020 are likely on average to survive 50 per cent longer than those who hit 65 in 1970.
And where in 2018, there were five workers (paying tax and PRSI) for every retiree, by 2050, that figure will be two workers per retiree.
Kenny notes that we’re far from alone in this dilemma. Other countries, including France and Britain, are experiencing similar issues and raising pension ages.
Ultimately that will mean higher taxes on the smaller proportion of the population that is actually working for lower, if any, State pensions. Doing nothing is not really an option.
“Any policy response that does not raise the age at which we receive the State pension will be very costly,” Kenny said, writing in this newspaper, adding: “If we want decent pensions, we must pay for them.”
And those, such as Sinn Féin and People Before Profit, who are clamouring for a return of the pension age to 65 should bear in mind that, in Ireland anyway, this age is only a fairly recent trigger point. As Ictu social policy officer Dr Laura Bambrick has noted, the State pension age in Ireland was 70 until it was lowered in the 1970s. Ironically, that was under a Fine Gael-led government in a coalition with The Labour Party.
What now then?
Recent Government policy has focused on two areas. The first is to make the State pension itself fairer. In very basic terms, this means those who work longer get a higher pension.
The second is to “encourage” everyone to start saving towards their retirement income needs. This is known in Ireland as “auto-enrolment”.
There has been broad political accord behind both initiatives, although there are certainly variations in policy and detail. The outgoing Government committed to having auto-enrolment in place by 2022. However, by the time the Taoiseach called the election, Minister for Social Protection Regina Doherty had not yet got around to bringing the measure before Cabinet.
Auto-enrolment essentially involves automatically enrolling workers into a pension scheme if they are not already part of one. This is primarily an issue for the close to 600,000 private sector workers who are not part of a private work-based, or occupational, pension scheme.
As envisaged by the outgoing Government, all workers between the ages of 23 and 60 earning more than €20,000 per annum would be enrolled in the scheme unless they are already members of an occupational scheme.
Initially they would pay 1 per cent of their gross income into the scheme, rising over time to 6 per cent and this would be matched by the employer. The State would also make a contribution – this was suggested at €1 for every €3 contributed into the scheme. That raised concerns in some quarters, given that the State contributes more than that for most workers in traditional occupational schemes.
A second bone of contention was the period over which the system would be phased in. The department originally proposed a six-year phasing-in timeline with contributions rising by 1 per cent of gross salary each year. That was opposed, particularly by employers wary of incurring additional costs.
As a result, it has most recently been suggested that the scheme would be phased in over 10 years. The problem here is that this is essentially a quarter of a working person’s life before they are fully up and running. Given the concern people have about adequate income in retirement, it seems a strange way of going about it.
In the auto-enrolment scheme there is a provision for workers to choose proactively to opt out at a point within the first year of membership. The thinking is that most people, once they are in, will simply stay in. But, if not, the proposal is that they will be re-enrolled at a later point when, possibly they will be more mature and more open to the concept of pension saving.
Workers will have a choice of investment funds, albeit a fairly select one: if they don’t make a choice, their money goes to a default fund. The pension they get on retirement will be determined by how much they contribute and how good the investment fund performance is.
The assumption is that after the election any new government will return to the plan to introduce such a scheme, possibly with minor amendments.
Auto-enrolment should mean that people are not left waiting for the State pension – or nothing – when they retire. But what about the State pension itself?
Changes introduced in 2012 made it more difficult for people to claim the State pension. They needed a higher number of weekly PRSI contributions to do so – essentially 19 years’ worth – and this mitigated against people who took breaks from the workforce to raise a family or care for elderly or sick relatives. Society being what it has been, at least until very recently, it was almost inevitably women who were disadvantaged.
A second disadvantage of the system was what was called “the averaging rule”. In order to get a full State pension, a worker had to average 48 or more PRSI contributions every year from the time they started working until they retired.
Again, people, especially women, who took time out from the workforce suffered, ending up with lower pensions. So too did those, often less well-off people, who started work in their teens rather than after college.
At the other end of the scale, someone who came to Ireland in their mid-50s and worked for 10 years to retirement could secure a maximum pension on the back of just 10 years’ social insurance contributions.
The answer: a new system for assessing entitlement to the State pension. This was called the Total Contributions Approach. Gone is averaging. In its place, a straightforward target to secure a full pension.
The original proposal back in 2010 under the National Pensions Framework was that 30 years of contributions would secure a full pension. However, when the Government issued its consultation on the issue, that had mysteriously morphed into 40 years.
The Government also proposed new Homecaring Credits. These would allow people to count up to 20 years spent taking care of their family as part of the 40 years’ pensionable service needed for a full State pension.
These credits are similar to the Homemakers’ Scheme, which was introduced in 1994 allowing women or men to receive PRSI credits for up to 20 years taken out of the workforce to care for children, but only under the age of 12 or any ill or disabled person of any age.
The plan was to have this new scheme in place for this year – and in fact it was rolled out in 2018 for people who have already retired, since the eligibility rules were tightened in September 2012 – but again the Government fell with the Minister still promising to bring the measure to Cabinet imminently.
Whoever wins in Saturday’s poll, it is likely that this – or a slightly amended reform of the State pension – will be on the table again shortly.
One thing seems certain. The graying vote has rattled all the main political parties, all of which rushed in with some pretty ill-judged promises. When the new government does eventually take office, after years of waiting we are finally likely to see some real action on pension reform.
Photo by Huy Phan on Unsplash
Things worth noting
Property body calls for extension of Help-to-Buy to secondhand homes
IPAV chief Pat Davitt says Covid-19 presents “compelling logic” for scheme’s expansion. The Institute of Professional Auctioneers & Valuers says the prospect of incomes being […]
House prices due to fall sharply in wake of pandemic
House prices are likely to fall sharply over the next year, a leading think tank has predicted. The Economic and Social Research Institute (ESRI) has […]
Central Bank boss defends banks withdrawing mortgage offers
Central Bank Governor Gabriel Makhlouf has defended banks that are withdrawing mortgage offers to people whose incomes are hit by the fall-out from the pandemic. […]
Irish Banks Again Europe’s Worst Performer as Crashes Add Up
Once again, Irish banks are at the sharp edge of a global crisis. In 2008, it was the melting away of liquidity. Just over a […]
Househunters squeezed as banks tighten rules in Covid-19 crisis
Getting a mortgage can be stressful at the best of times. Add a pandemic and things ratchet up. Whether you are applying for a mortgage […]
Mortgage borrowers hit by Covid-19 jobs slump ‘facing problems securing mortgage breaks’
Mortgage borrowers previously in arrears but who are now up to date with their monthly payments have had difficulties in automatically accessing the three-month mortgage […]
Banks add Covid-19 income conditions to mortgage offers
Raft of assurances are sought over bonuses, overtime and future job security Several Irish banks and lenders are adding new conditions to mortgage loan offers, […]
Self-employed may feel chill from Covid-19 for some time
The self-employed face mortgage struggles. All business owners are weighing up the effect of the Covid-19 closures on their trade at present, with many trying […]
House valuations are being reduced by 10pc during the mortgage process due to Covid 19 according to brokers
Some bank valuations are lower than agreed sale prices due to Covid-19 “The valuations are coming in at less than what the agreed purchase prices […]
Judge says fairer debt settlement system needed for Covid-19 economic crash
A High Court judge has criticised the “all too common” practice of practitioners copying and pasting paragraphs from court papers in other cases without regard […]
Q&A: Where do we stand on mortgage holidays and payment breaks?
As the Covid-19 crisis deepens across the world, many are concerned about how they’ll continue paying outgoings when the money coming in the door is […]
Family with €1m house would be ‘better off trading down’ as judge rejects personal insolvency deal
A High Court judge has refused to approve proposed personal insolvency arrangements for a couple aimed at allowing their family to remain in a five-bedroom […]
David McWilliams: We need to totally reimagine economics
Our Central Bank has unforgivably abdicated in this crisis, precisely when it was needed. When events change, we change our minds. Old rules go out […]
Insolvency lawyer warns of ‘disaster’ if firms reject Covid-19 wage subsidies
The head of insolvency at one of Ireland’s top corporate law firms has warned that recent criticisms of the State’s scheme to pay 70 per […]
Home truths: Covid’s duration will determine its impact on values
Speculation about where house prices and the property market will end up in the aftermath of Covid-19 has already started, with the publication during the […]
Doubts raised over Covid-19 wage subsidy scheme after lawyers warn the initiative is unworkable
The crucial wage subsidy scheme aimed at keeping hundreds of thousands of people in jobs has been thrown into doubt after lawyers warned it was […]
World will need new financial system after Covid-19
The world as we know it is about to change radically as a result of Covid-19. How we live our lives, how we work, how […]
Irish banks fielding 7,000 calls a day on mortgage breaks
The Republic’s five mainstream banks have been dealing with an average of 7,000 calls a day from homeowners since they agreed last week to industry-wide […]
New house prices to fall 15% to 20% – analyst
Investors believe that the Covid-19 crisis will slash new house prices by 15 to 20 per cent, one stock market analyst says. A note from […]
Those who test positive likely to struggle to get life and mortgage protection cover
Concerns: Michael Dowling fears some people will be unable to take out life cover People who test positive for Covid-19 may struggle to get life […]
Apple’s €15bn back tax could fund Ireland’s cash crunch
Where will the money come from? The cash being thrown at economies around the world will, in the first instance, be borrowed. Ultimately, taxes will […]
How to navigate the property market during the pandemic
These are testing times. Covid-19 has reached into every sector, including the property market, and everyone is scrambling to adapt to the challenge. For those […]
State may need to ramp up spending to €34bn
Employers’ group Ibec and trade unions have called on the Government to step up payments for workers and companies in response to the economic damage […]
No hit to credit record for those who get mortgage break off bank
A deal is being hammered out between the Central Bank and main lenders so people who avail of a Covid-19 mortgage payment break will not […]
Temporary ban on all evictions is to be introduced for duration of coronavirus crisis
The Government has confirmed that a temporary ban on evictions and rent increases will be introduced for the duration of the Coronavirus crisis. Housing Minister […]
Dublin house sales fall 1.5% as affordability pushes buyers out
Biggest slowdown in sales were in Dublin 6 and Dublin 13, down 22,3% and down 30.1% respectively The number of houses sold in Dublin fell […]
€32m debts written off by court in three days
More than €32m in personal debt has been written off this week under insolvency arrangements approved by the High Court. The huge sum relates to […]
€2m debt write-off for publican approved
The High Court has rejected objections raised by a vulture fund to a personal insolvency arrangement (PIA) writing off €2m in debts owed by a […]
Chasm between values of new and second-hand houses
A growing chasm between the values of new and second hand homes has been highlighted by the banking sector which says loans issued to first-time […]
Irish banks still lack ‘consumer-focused culture’, regulator warns
Central Bank highlights risks to Irish consumers of ‘irresponsible unsecured lending’ The Central Bank has identified a number of key risks to consumers of financial […]
Coronavirus: Irish banks offer relief to borrowers hit by coronavirus
Goldman Sachs sees coronavirus fallout wiping €30bn off European banks’ profits Banks in the Republic said they will offer relief, including short payment holidays on […]
Dermot Desmond: Everyone has a right to a home. Here is how it can be done
We have allowed homes to become a globally traded financial asset, inflating the price of those homes, the profits of developers, and the value of […]
Dublin’s cool Northside moves ahead of stuffy Southside to hold the housing hotspots
Q Two northsiders are travelling in a car. The music is turned off and the windows are up. Who’s driving? A: The Garda. Q: How […]
AIB drops fee for mortgage customers breaking out of fixed rate
AIB is allowing some customers to break out of fixed mortgages and lock into lower ones at no cost, in a move that is likely […]
Ulster Bank fined €4.6m over data on mortgages
ULSTER Bank has been fined €4.6m by the Central Bank for failings around mortgage data it supplied to the regulator. The fine would have been […]
Debt-for-equity swaps could help thousands of insolvent people
Seniors could resolve unaffordable mortgages if law ‘tweaked’, say debtor advisers Thousands of older people in long-term arrears on their mortgages could benefit from a […]
Pressure now on more banks to cut their rates in mortgage price war
More banks are coming under pressure to reduce their mortgage rates after market leader AIB announced a number of reductions. The focus is now on […]
Just 8,000 houses built last year offered for sale on open market, says CIF
Investment funds bought 95% of 3,644 apartments completed last year Only about 8,000 of the 21,000 new homes built in the Republic last year were […]
Mortgage holders here still paying double Euro average
MORTGAGE rates in this country have fallen below 3pc for the first time in years. But there is scope for much deeper cuts, mortgage experts […]
Revolution in fintech keeps the bankers awake at night
Shake-up: Revolut and other fintech firms are forcing banks to increase their tech focus I was more than a little surprised at the response I […]
AIB was always going to lose battle – it’s just a pity it waited so long to concede
AIB was always on to a loser trying to defend its actions in denying 6,000 customers tracker mortgages. The bank tripped itself up and was […]
The changes still needed to tackle the banks’ bad management cultures
Regulation: Unlike the UK authority, the Central Bank of Ireland does not have competitional law enforcement powers, an issue which deserves to be reconsidered Banking […]
Paul Joyce: Mortgage arrears have been ignored but not solved
Housing, homelessness, and healthcare have justifiably dominated the election so far. But one aspect of the housing crisis, however, that has received little attention is […]
Home truths: The story of Eoghan and the home hoovers
The big view on Ireland’s property market Whenever Eoghan Murphy is asked about his unforgettable term as Minister for Housing, one of the first things […]
Typical household wealth has risen to €184,900 – but renters are losing out
The wealth of households has shot up due to rising property values. But renters have very little wealth, according to figures from the Central Statistics […]
Most people unaware about credit card interest rate they are charged
The majority of Irish credit card users are unaware of the interest rate they pay, or how it is applied. And even those who say […]
Divorce: what happens to the family home?
For parting couples with property to divide, it’s complicated. When love leaves the building, what happens to the home? For most, the family home is […]
Frank McDonald: Housing policy a litany of failure
Current housing policies benefit wide array of monied interests Whoever forms the next government will have to deal with Ireland’s utterly dysfunctional housing sector and […]
First-time buyers drive growth in mortgage values and volumes
Banking & Payments Federation Ireland publishes figures for fourth quarter of 2019 First-time buyers drove increases in the volume and value of mortgage drawdowns during […]
Housing crisis: What the rest of the world can teach Ireland
High-densities, smart rental systems and container living – just some of the ideas we could adopt LOW-COST RENT Vienna, Austria Among the most discussed ways […]
Mother (93) has right of residence upheld despite judgment against son
Any failure to properly provide for Eithne Ryan ‘lies squarely’ with her son, says judge A 93-year-old woman is “perfectly entitled” to continue residing at […]
Housing crisis: Seven solutions to Ireland’s biggest problem
Cut building costs, incentivise buy-to-rent and overhaul property tax, experts advise ‘The Housing Fix’ is an Irish Times series exploring solutions to Ireland’s housing crisis […]
Fianna Fáil may have just pressed the pause button on the property market
The party’s new SSIA may cause a significant number of housebuyers to put their plans on hold for an unspecified period The man who is […]
Court approves debt for equity swap insolvency arrangement
Decision is first to be approved by High Court involving a debt for equity swap The High Court has approved a personal insolvency arrangement (PIA) for a […]
Record €60m debt write-off for former quarry operator gets High Court approval
A former quarry operator has had a €60m debt write-off approved by the High Court – the largest ever under personal insolvency legislation. Enda Patrick […]
State-backed mortgage scheme hikes interest rates steeply despite bank cuts
The interest rate on the Government’s Rebuilding Ireland Home Loan product has been increased massively. Rates have shot up by up to 0.75pc at a […]
Home truths: Big time housing promises without taxes are hollow
What can you get for €16bn these days? Well €16bn is the total amount estimated that Irish people will spend online this year. The Consumer […]
One in 10 mortgage arrears cases involve separated borrowers – BPFI
Banking lobby group calls for State to introduce measures to help separated borrowers. About one in 10 mortgage arrears cases involve borrowers who are separated, […]
In your pocket: Switching mortgage can bring major savings
Rates are falling and lenders are keen to offer better deals – it’s easier than you think. Up to 160,000 Irish families are out of […]
Mortgage interest rates dip but remain more than double euro-zone average
Central Bank statistics show weighted average interest rates on new mortgages was 2.9% in November. Interest rates on mortgages taken by Irish consumers were lower […]
New buyers pay €2,000 a year more than rest of eurozone
RIP-OFF mortgage rates in this country are costing new home buyers €2,000 a year more than our European neighbours. New figures from the Central Bank […]
Pensions deliver decade-best growth of 20.6% in 2019
Zurich Life tops peers as funds recover from calamitous end to 2018. Irish pension funds delivered bumper returns in 2019, making it the best year for investment returns in […]
Another year of dysfunction ahead for Ireland’s property market
Looming general election and UK-EU trade talks add to uncertainty for developers. With the new year now a week old and a raft of predictions […]
Responsible Homeowners Betrayed
Thousands of responsible homeowners have been betrayed by the sale of their mortgages by PTSB into a bond fund which will be serviced by […]
Revealed: Ireland’s most expensive streets and their €2m plus homes
Daily growth of €15m in value of housing stock fuelled by new supply rather than increasing prices, writes Wayne O’Connor A leafy Dublin street sandwiched […]
Harsh austerity ‘imposed on Ireland’ by Berlin, says ex-official
Republic caught in crossfire between Germany and other bailout states Ireland was hit with unnecessarily harsh austerity measures a decade ago at Berlin’s behest, […]
Value of residential property in Ireland up by 5.3bn euro in last 12 months
SEVEN HUNDRED AND fifteen properties worth €1 million or more have been sold in Ireland so far this year, according to the latest Wealth Report from […]
Want to start the process?
Let us guide you through the mortgage process