A State Pension Age Solution? The Pensions Commission’s Recommendations

by Patrick O’Connor, Senior Associate, Employment Law and Benefits department, Mason Hayes & Curran

The Pensions Commission (Commission) Report has been published and it contains a range of recommendations that attempt to ensure that the State Pension remains manageable for the State for the next few decades.

During the 2020 General Election, the State Pension age was hotly debated and many of the political promises did not necessarily align with the economic reality. Instead of retaining 66 as our State Pension age indefinitely, the Commission has recommended an incremental increase that would begin in 2028. It recommends that, instead of an immediate increase to 67 in 2028, the State Pension age should increase gradually by three months per year to reach 67 in 2031. The Report also recommends that similar increases should be implemented every second year after 2031, with the State Pension age eventually reaching 68 in 2039. To achieve this, the Commission has made a number of other recommendations.

A State Pension Account

The Commission has recommended the creation of a separate “State Pension” account as part of the Social Insurance Fund with 10% of pension expenditure being paid to it per annum. To allow for this, the Commission has recommended a gradual increase in the level of PRSI for self-employed individuals to 10% by 2030 and to 12.5% by 2050. It has also recommended an increase of employer and employee PRSI contributions of 1.35% starting in 2030 and ending in 2040.

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Retirement Age

The Report also contains a recommendation to introduce legislation that will allow employees to remain in employment until the State Pension age if they wish. To facilitate this, the Commission has recommended the preparation of guidance for those who wish to work past their normal retirement date.

Transparency

The Report suggests that PRSI statements, showing contribution records and indicating pension entitlement, should be sent periodically to those making contributions. It also suggests that any PRSI related propositions made by Government should be subject to gender and poverty proofing.

Access to State Pensions

For those with a long social insurance contribution record of 45 years or more, the Commission recommends allowing access to the State Pension Contributory at 65. However, it also suggests that it should be possible to defer the State Pension up to the age of 70. For the purposes of an individual’s social insurance record, the Commission also recommends that a person should be allowed to make PRSI contributions past the State Pension age.

Long-term Carers

The Commission also addresses those that look after others on a long-term basis. It recommends that those performing unpaid caring duties for more than 20 years be permitted access to the State Pension by having retrospective social insurance contributions paid for them by the Exchequer when approaching the State Pension age. This would aim to deal with any gaps in their contribution history due to unpaid caring work. To achieve this, the Commission suggests that consideration should be given to the creation of a “Family Carer Register”.

Conclusion

Last month, the Minister for Social Protection, Heather Humphreys noted that “very difficult decisions are going to have to be made” when it comes to the State Pension. She noted that the aim of Government is to ensure that younger workers obtain the same benefits as those that are retiring today. She stressed that this was at the “heart of the decisions” that will need to be made.

There is no question that a sustainable State Pension needs to be implemented as soon as possible to prevent a future pension crisis. However, the State Pension age has become a political football in recent years and it is unlikely to disappear from election manifestos.

About the author
Patrick is a Senior Associate on the Pensions team with Mason Hayes & Curran Employment Law and Benefits department. He joined Mason Hayes & Curran in 2019 having previously worked for four years, as an in-house solicitor with a large pension provider and professional trustee company.

Patrick advises trustees, pension providers and employers on all aspects of pension law. He has extensive experience in all areas of pension law including the drafting and amendment of scheme documentation, the interpretation of pensions legislation and Revenue compliance. Patrick has experience in trust law, managing complaints to the Financial Services and Pensions Ombudsman and pension investment structuring. Patrick also has particular expertise in advising on single member pension arrangements.