PSRI hikes planned for workers under plan delay increase in retirement age
Workers face a series of PRSI hikes in the coming years to help fund a government delay in raising the state’s retirement age, under new proposals.
the self-employed will pay the price initially because they would see their contributions go from 4 to 11% in the years to come.
This decision would impact up to 331,000 people who are self-employed in the state.
Other employees will also experience some of the pain of the PRSI rate hike, although these don’t kick in until the 2030s.
A confidential draft of the Pension Commission report, seen by the Independent Irish, shows that future generations of workers and employers will be affected by increases if its recommendations to finance the state pension system are adopted.
The Independent Irish revealed this week that the commission recommends blocking an increase in the age at which people can qualify for state retirement.
The state’s retirement age is currently 66. In its report, the committee recommends that the retirement age be raised by three months per year after 2028, reaching 67 in 2031, before rising to 68 in 2039.
However, the reform package he will recommend to “meet fiscal sustainability” also comes with increases in the PRSI and a state contribution to support the system.
Self-employed workers would see PSRI increases first. Their rate would drop from 4pc to 10pc initially by 2030.
It would switch to a higher rate – which now stands at 11% – before jumping 2.4% by 2040 and 0.1% by 2050.
There would be no increase for employees or employers until 2030, but they would pay 1.35% more by 2040.
The report also recommends that the Exchequer would pay an annual contribution equivalent to 10% of its expenses for the state pension. The commission was created to examine the viability of the pension system, as costs are set to rise sharply due to the aging of the population.
“Fortunately, people are living longer and are healthier than previous generations,” the report says.
“A 65-year-old man has a life expectancy of 18.2 years, while a 65-year-old woman has a life expectancy of 20.9 years.
“This has increased by about five years over the past two decades and is expected to increase by another three years over the next two decades.”
Its draft report notes that an increase in the retirement age to 67, which is expected to take place this year, “figured to a large extent” in last year’s general elections.
Following public outcry, the increase was postponed pending the commission’s report.
“This public concern continues and has been confirmed in subsequent polls and in numerous submissions to the commission.”
The report says it emphasizes the PRSI of the self-employed “for reasons of justice and equity”. He says their rates are “significantly lower” than 4pc.
He looked at four options for funding the system, one of which would be based solely on PRSI hikes. The other options would mean larger increases in the PRSI that would start cutting wages sooner.
Other key recommendations include:
:: The retirement age in employment contracts should be aligned by law with the state retirement age. This would mean that an employer could not set a mandatory retirement age lower than the state retirement age.
:: Increase the state pension based on wages or inflation, rather than continuing with the government’s practice of making announcements on Budget Day. It recommends the “immediate implementation” of benchmarking and indexing.
:: Those over the retirement age who are currently exempt from the PRSI should pay it “on a solidarity basis”.
:: Removal of the PRSI payment exemption on supplementary pensions and public sector pensions.
:: Allow people to defer state pension until age 70, when they would get an increased weekly payment.
The commission says it has considered four “political levers” to fill the deficits foreseen in the Social Insurance Fund.
They included increases in PRSI rates, an expansion of the PRSI base, increases in the state retirement age, and a new annual contribution from the treasury to the state pension fund.
He argues that using one of these levers on its own to fill the deficits of the Social Insurance Fund “would require a change so extreme that it would be impractical, if not impossible to implement.”
He says the state pension system should continue to be funded on a pay-as-you-go basis. However, he recommends the creation of a separate account from the Social Insurance Fund.
It supports the Exchequer’s annual contributions to this account, rather than grants when it falls into deficit.
“At the commission’s first meeting, Social Protection Minister Heather Humphreys TD made it clear that the government will not reduce current state pension payment rates,” he said.
“The committee agreed from the outset that the program’s commitment to ‘maintaining the state pension as the foundation of the Irish pension system’ required that the state pension continue to have a primary objective of ensure that the pension paid to beneficiaries is sufficient, at a minimum, to protect retirees from poverty.