Think-tank urges cutting tax breaks to fund universal pension

A universal pension could be funded by reducing pensions tax breaks that mostly benefit the richest 20% of earners, according to Social Justice Ireland.

The independent think-tank says every person over the age of 65 could have a pension of €230 a week, the current contributory pension rate, until 2016, rising over time to 40% of average earnings.

This would replace the current contributory and non-contributory State pension.

Director of Social Justice Ireland Sean Healy said the universal pension would be funded principally by standard rating the current tax-break for private pensions, 80% of which went to the better off.

“No existing pensioner would lose out and many would experience an increase in the universal pension,” said Dr Healy.

Research and policy analyst with Social Justice Ireland Michelle Murphy said introducing a universal pension along the lines proposed by Social Justice Ireland would be a strongly progressive change, as nearly 82% of the current tax relief for private pensions accrues to the top 20% of earners, with 56% accruing to the top 10%.

“Implementation of a universal pension along the lines proposed by Social Justice Ireland would provide security, equity and certainty,” said Ms Murphy. “It would also be just, efficient and sustainable.”

The universal pension would be residency-based. For each full year an eligible individual was resident in Ireland between the ages of 16 and the State pension age, they would accumulate a 2.5% increase in the universal pension.

For example, if the State pension age was 66 and an individual had been legally resident for 30 years between the ages of 16 and 66, they would receive 75% of the full rate of the universal pension. Those resident in Ireland for 40 years — from age 16 to pensionable age, would receive the full universal pension.

However, Samantha McConnell, chief investment officer at financial services firm IFG, said the tax relief referred to by Social Justice Ireland was for self-employed people and did not take into account the PAYE sector.

Ms McConnell said the State pension was unsustainable at its current level and, ultimately, the Government was going to have to address that, either by means-testing or bringing in some universal pension.

“To do that, while at the same time reducing tax relief, which has largely been reduced quite significantly, I don’t think is the way to go,” she said.

Ms McConnell said the Government was going in a different direction from what was being proposed by Social Justice Ireland.

She believed the Government was focused on how to implement a €60,000 maximum income for private pensions.