The State Pension has been in the news a lot in the last week. With all the news circulating, it’s fair to ask what is actually happening. In this post, we look at what is going on with the State Pension.
Update: Due to the Covid-19 pandemic, the government has postponed any decision on changes for now. (Nov 2020)
From 2021, the age at which a person becomes entitled to collect the State Pension will increase from 66 to 67. This has been the headline news.
When did this happen?
The phased increase in the State Pension age from 65 to 68 was introduced in 2011 (Fine Gael/Labour). At that time the age a person became eligible to collect a pension from the State was 65. This was increased to age 66 in 2014, with a further increase to age 67 by 2021 and age 68 by 2028.
Was there an outcry at the time?
As a Pension Consultant at the time, I remember expecting something of a protest. Maybe not by French standards where the whole country would come to standstill amid protest, but some backlash. It did not materialise.
The next increase will take place next year, those retiring last year and this year can now fully realised the gap in their income. Furthermore, the upcoming election is helping to ensure it is a hot button topic.
Why did they do it in the first place?
This pension time bomb has been ticking for a while now, with questions over the sustainability being identified decades ago. However, in a Green Paper on Pensions published in 2007. Keys findings were noted such as “Ireland is experiencing demographic changes which increasingly, over time, will add considerably to the cost of pension provision” (Chp1.16).
As the State Pension is paid from the exchequer (tax take each year) the ratio of people working and paying tax vs how may are in receipt of the State Pension is a delicate balancing act. The scales are beginning to tip in the wrong direction, with the number of workers to fund state benefits decreasing and the number of retired individuals increasing. By 2050 that ratio will have inverted completely.
There are many other factors adding to the pressure on pensions, people are living longer, private pension coverage is low at around 50% and the cost of securing pensions has increased.
What will happen next?
Complete pension reform is required. Mandatory and soft mandatory pensions were touted as the potential solution within the 2007 Green Paper, however, recovery from the 2007-2008 financial crisis was a priority for the Government and this issue went on the backburner. The only reform that happened was the now hotly debated topic of the phased increase in the State Pension age.
In 2018, the Government finally published their Roadmap for Pensions Reform 2018-2023 and pensions were back on the agenda again. However, Brexit has had an impact on the delivery of this. This roadmap outlines a framework for the reform of state pensions and mandatory pensions via an auto enrolment system.
In the meantime, the timing of the General Election so close to this further increase in the State Pension age has led to the resurgence of this issue. Whether the political parties bow to any pressure on this remains to be seen, however, the problem is not going away. I hope that this news coverage will encourage people to think about pensions in broader terms and to engage with their own pension requirements.
Here to help you navigate your way to financial security.
The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries. Our team will work with you to review your finances, explaining your options in clear English.
No jargon – just the facts.
For further information please contact Susan O’Mara via email or phone: (01) 406 8020. Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.