Government Pension plan a missed opportunity, study finds

The Government’s new pensions plan has missed the opportunity to provide a Universal Pension as a basic right to all citizens, a new study finds.

'A Universal State Social Welfare Pension', published by Social Justice Ireland today, also reports that the plan has failed to address major long-running issues around equity, sustainability and bureaucracy which have affected Ireland’s pension system.

The study examines Ireland’s pension system and contains a fully costed proposal for the introduction of a Universal Pension in Ireland based on residency, not social insurance contributions.

Seán Healy, CEO of Social Justice Ireland said: “While there are some positive aspects to its plan, the Government’s proposals would still leave many people without a pension as they grow older after many years of contributing to society. This is not the best or the fairest way for Government to use its resources.”

“The Government’s announcement may have been buried by the snow last week, but it is hugely significant to the future of our State," he said.

The study contains three key adjustments to the current system.

These include changes to ensure every older person who has been resident in Ireland will receive a full pension payment and have only one test for assessing pension payments, rather than the system which bases payments on a number of conditions. The group also recommends a standard rate on employee contributions to private pensions which differs from the current system insofar as tax relief is assessed at the marginal rate.

The Government published their Roadmap for Pensions Reform last week, proposing a restructuring of how workers’ social insurance contributions translate into their final state pension and an ‘automatic enrolment’ plan for private pensions.

“Social Justice Ireland’s proposal shows how to fund a Universal Pension System based on residency. This would replace all other social welfare pension payments and would be funded by a restructuring of the tax relief system on private pensions and a modest increase in Employer PRSI," said Eamon Murphy, Economic and Social Analyst at Social Justice Ireland.

Social Justice Ireland proposes that the Universal Pension would start at €243.30 a week, the same as the current contributory State Pension. It would be residency based, meaning that the more working-age years a person is resident in Ireland, the higher the percentage of the full pension they receive. 40 years of residency between the age of 16 and the State Pension Age would entitle a person to the full amount.

According to these costings, introducing this system in 2019 would cost the State €727 million. There would be two ways of funding this: the first would entail reducing the rate of tax relief on private pensions from 40% to 20% and the second would focus on increasing employers PRSI by 0.5%. These, along with some other smaller measures, would raise in the region of €949 million, which is €200 million more than the additional cost of the Universal Pension in 2019.

The study goes on to argue that the social welfare pension should rise to 35% of average earnings and be maintained at that level in the decades ahead. The study projects the numbers forward to 2046.

- Digital Desk

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