Time for new form of universal pension to ensure sufficient income in old age for everyone

Poor people cannot make provision for old age when they barely have enough to live on throughout their lives, writes Dr Sean Healy

An estimated 65,000 older people are at risk of poverty and 85,000 people aged 65 and over are experiencing deprivation

Every person has the right to sufficient income to live life with dignity in old age. Every older person has contributed in one way or another over the years. Many contributed through their jobs.

Others did so by caring for children, older people or people who were ill or disabled. Others still have made great contributions to their communities, to local organisations, to their families and friends. When people are older they should not be short of the essentials.

Yet an estimated 65,000 older people are at risk of poverty and 85,000 people aged 65 and over are experiencing deprivation. Fewer than one in five in the lowest income group have a pension from their job, while 94.2% of the highest earners have such a pension. The poor simply cannot make adequate provision for their old age when they barely have enough to live on throughout their lives.

Social Justice Ireland has proposed the introduction of a Universal State Pension. This would mean that a payment would be provided, as a right, to every person over the eligible age who meets the qualifying criteria, to replace all other Social Welfare pension payments to those people.

Social Justice Ireland proposes three key adjustments to the present system:

  • On equity: ensure every older person who has been resident in Ireland will receive a full pension payment (unlike the current system or the Government’s proposed new system, both of which leave large numbers of older people with only partial or no pension.
  • On sustainability: make the system more sustainable by standard rating employee contributions to private pensions (unlike the current system which gives tax relief at the marginal rate which results in the major benefits going to the higher paid).
  • On bureaucracy: dramatically reduce the bureaucracy by having only one test for accessing the payment and eliminating the myriad of conditions that are part of the current or the Government’s proposed systems.
  • With an ageing population and the number of people in defined benefit schemes falling, it is clear that the shortcomings in Ireland’s pension system need to be addressed urgently. The Irish Government published its 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.

    How is this proposal different to the current old age pension?

  • It is fairer, more transparent and less costly than the current pension model.
  • It would be paid at the rate of the existing State (Contributory) Pension (currently €243.30), meaning those on the State (Non-Contributory) Pension would receive an increase of €11.30 per week.
  • Over time, it would gradually increase to reach 35% of average earnings by 2022.
  • It would be paid to individuals, so households currently in receipt of a social welfare pension for a ‘head of household’, and a ‘qualifying adult’ payment for their spouse or partner would, instead, receive two pensions per adult of eligible age who meets the criteria.
  • What are the eligibility criteria in this new proposed system?

  • Must be aged 66 or over.
  • Must be resident in the State for at least 40 years between the ages of 16 and 66.
  • If resident for less than 40 years, a payment of 2.5% in respect of each year of residency between the ages of 16 and 66 will be made. Example: Mary is 66 and has been resident in Ireland for 30 years, she will receive 75% of the universal payment (€182.48) per week as she has been resident for 75% of the qualifying period.

    How would it be funded?

    The universal pension would cost an additional €700 million approximately in 2019. This would come from a reform of the structure and tax relief for private pensions and through employer PRSI, which would raise an additional €948m, meaning the Social Justice Ireland proposal would be cost neutral or better at the initial stage.

    The tax reforms proposed by Social Justice Ireland would:

  • Reduce the marginal rate of tax relief on private pension contributions, including the pension levy, to the standard rate of 20%. At present those with higher earnings benefit at 40% with the result that 80% of the benefit goes to the wealthiest 20% of earners.
  • Reduce the earnings contribution cap from €115,000 to €72,000.
  • Reduce the Standard Fund Threshold from €2 million to €500,000.
  • Increase the rate of Employer PRSI from 10.85% to 11.35%.
  • A universal pension would provide: income security for all into old age; gender equality by changing from the current ‘qualified adult’ system, which disproportionately discriminates against women, to individual payments; certainty of income for retirement planning; social justice and solidarity as a societal contribution to older people; a step towards eliminating poverty in line with Ireland’s commitment to the Sustainable Development Goals ; administrative efficiency, as the universal payment would replace the range of existing social welfare payments to older people; predictability of cost into the future, encouraging fiscal responsibility and provisioning; sustainability.

    Our pension system needs to be more effective at promoting equity and sustainability while reducing the bureaucracy at the core of the current system. We need to take this opportunity to create a fairer society.

    As it stands, 70% of tax relief on pensions accrues to the 20% who are the highest earners, with more 50% of tax relief going to the top 10% of earners. Our proposals are about redistribution for the benefit of everyone.

    We need to future-proof our society and economy from a macro perspective, but let’s not forget that this is about each individual’s financial security going forward.

    It’s a choice between laying the foundations for an Ireland where people can grow old secure from the risk of poverty or allowing the present pensions’ situation to spiral into a social crisis of very large proportions.

    A Universal State Social Welfare Pension was published by Social Justice Ireland this week. The full report is available at www.socialjustice.ie

    Dr Seán Healy is chief executive of Social Justice Ireland.

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