Young and low-income workers to be hit hardest if pension linked to life expectancy 

Young and low-income workers to be hit hardest if pension linked to life expectancy 

Advocacy groups including ICTU, Social Justice Ireland, and Age Action, say the proposed delaying of State pension would harm younger and poorer people most, and could contribute to cumulative disadvantage. Picture: PA

Young and lower-income workers will be disproportionately impacted if the Government adopts , a proposal to link the State pension age to life expectancy, it has been claimed.

The proposal, contained in a report on the country's ageing population launched by Finance Minister Paschal Donohoe, could see workers unable to get a State pension until they are in their 70s.

The model contained in the report is based on the State pension age (SPA) being increased to 67 this year, and then 68 in 2028. After that for every year of an increase in life expectancy, the SPA would rise by nine months. 

To put that in context, the report predicts men's life expectancy to rise from 81 to 87 by 2070, and from 85 to over 90 for women.

The Department of Finance says the proposal could “significantly reduce the cost burden" on taxpayers. It says slower revenue growth and rising expenditure will put significant pressure on the public finances in the future. 

"Significant structural reforms are, therefore, absolutely necessary to meet the fiscal costs associated with population ageing,” the report states, adding that a failure to reform it will see the debt ratio move onto “an unsustainable path”.

According to the report, there are currently around four people of working age to support each person aged 65 and over, with this number expected to fall to just over two by 2050.

It adds that age-related expenditure is set to be €17bn higher by 2050 and revenue increases will not be sufficient to fund all of these expenditure pressures.

Pensions Commission recommendation

It comes after the Pensions Commission recommended increasing the State pension age to 67 between 2028 and 2031, before gradually increasing it to 68 by 2039.

Mr Donohoe said the Government will have to come up with a solution that is "financially sustainable", adding that "in any decision the Government makes there will be consequences to it".

Taoiseach Micheál Martin said “full consideration” would be given to the proposals, adding that a “menu of options and decisions” have arisen from the report.

“Over the next 30 years, significant challenges will be facing us as a society in terms of pension sustainability because we’re ageing more as a society in terms of the proportion of young people to older people and people in the workforce,” he told reporters in Cork.

'Life expectancy linked to deprivation'

However, Laura Bambrick of the Irish Congress of Trade Unions, pointed out that life expectancy varies between income groups.

“The National Deprivation Index in November 2019, pre-Covid, found the difference in life expectancy between the most deprived area in the country, Limerick City, and the least deprived area, Dun Laoghaire-Rathdown, was 6.4 years for women and 7.5 years for men,” she said: 

Pegging the pension age to life expectancy would more negatively impact on low-income workers — those who, on average, enter employment at an earlier age than college-educated professionals in high-income groups who, on average, live longer and draw the State Pension for longer. 

Sean Healy, of Social Justice Ireland, said the proposal is "just another Government initiative that damages the prospects of young people today".

"Having already been priced out of the housing market, they're now looking at a future where they have to work longer for uncertain payments in their State pension," he said.

He added there would be a disconnect between the rate of the State pension and the cost of rent, as home ownership rates continue to decline.

Age Action Ireland acknowledged the need for pension reform, but said it must uphold equality and recognise "cumulative disadvantage".

"You carry disadvantage through your life course whether that's to do with lack of education, living in poverty, not having access to good housing," said Celine Clarke, the charity's head of advocacy.

How that affects you when you're older is of concern to us. It's not as simple to link it to life expectancy because we all experience age differently.

However, Rachel McGovern, director of financial services at Brokers Ireland, said it is “inevitable” that the pension age will have to rise in order to keep the rate "where it stops poverty in retirement and old age".

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