IFAC recommends Govt sets up State pension fund
The Government has been urged by budgetary watchdog the Irish Fiscal Advisory Council to take steps now to ensure State and public sector pensions are funded into the future.
IFAC warns that otherwise tensions will arise when a smaller, younger, working population will have to pay more to fund a larger retired population.
It recommends setting up a State pension fund and using windfall receipts of Corporation Tax.
IFAC has long warned the Government of the looming costs of funding pensions as the proportion of retired people to the working age population is set to double by 2050.
Last year, the Government ruled out raising the age when workers are entitled to receive the State Pension from the current age of 66.
It indicated PRSI contributions will have to go up, but stopped short of saying by how much or who would be expected to pay.
IFAC says this ‘obscured the trade-off between a lower retirement age today and future costs.’
It says if PRSI rates were raised by 3.5% now, so-called baby boomers would pay more towards their pensions while they’re still working rather than loading younger workers with even higher rates of PRSI in the future.
It also suggests setting aside some of the windfall receipts of Corporation Tax which might lower the overall cost of pensions.
It says governments should be required to put in place credible plans on financing pensions on a long-term basis.
Today, there are approximately four people of working age for every retired person in the State.
However by 2050 that is set to dramatically change to a society where there just under two working age people for every retired person.
That means, under the current PRSI model, there will be far fewer working people paying into the pension system through their contributions than there will be retired people receiving pension payments.
One of the proposals tabled by IFAC is to raise PRSI contributions now to smooth out the required increases in PRSI over time.
This, it argues, would avoid the scale of steep increases needed in the future and would share that burden more equally across the generations.
Otherwise, younger workers today will be expected to pay much more into the system in the future.
It also suggests using some of the windfall receipts from Corporation Tax in recent years which would defray some of the expected costs of future pensions.
Article Source: IFAC recommends Govt sets up State pension fund – Robert Shortt – RTE