The Taoiseach is correct to keep the pension age at 66 because by introducing a ban on forced retirement, we can with one simple measure significantly address the pension deficit.
This specific issue was addressed last February in the pension report of the Joint Oireachtas Committee on Social Protection which looked not just the issues around the retirement age, but also the broader issues related to pensions and the funding of them into the future.
One of the key issues for the Committee in overcoming our pension challenge over the next 50 years is the introduction of legislation banning mandatory retirement in employment contracts, both new as well as retrospectively being applied to current work contracts, giving people the option, if they wish, to work beyond their present retirement age.
It is the view of Committee members that it would be wrong to force people to retire at 65 and then have to wait until 68 to access a pension. And while some preliminary figures were available to the Committee on the potential costings of providing a social welfare payment to people between their 65th birthday and accessing the State Pension at 68, these could not be robustly extrapolated into the actual cost to the State of such replacement supports.
For me, the bigger issue here is that if we remove the forced requirement to retire at 65, I believe that many workers, will continue to remain in employment. I’m of this view not just because of the changing nature of work, particularly here in Ireland, where we’re moving from more manual employment to technology, even remote based, which allows people to continue to physically work for longer. But also because some of the financial realities of living in Ireland today, mean that people will have to work longer to be financially secure in their retirement.
According to the Banking and Payments Federation Ireland, the average borrower age is 40 with an average loan term of 22 years. And the Central Bank has highlighted in a report on household lending that almost 50% of new first-time-buyer loans in the first half of 2018 had a loan term of between 30 to 34 years. This leaves little time for people to build up personal savings before they retire, after clearing their mortgage. Furthermore, many more people are starting their first full-time job, well into their 20’s which will leave them short on receiving a full contributory State pension by their 65th birthday.
The Committee considered a technical paper produced by the Pensions Commission which pointed out that while increasing the state pension age has the greatest impact on reducing pension expenditure, a substantial increase in the employment rate of older workers (of 10 percentage points by 2070) would also reduce future expenditure. This paper points out that the difference between increasing the pension age to 68, compared to increasing the employment rate of older workers by 10 percentage points over the next 50 years, is just 0.3% of GNI*.
Now surely, if there was as much effort put into removing barriers to facilitate older people working longer, as there has been in pushing up the retirement age, then I believe that it is within our capacity as a country to increase the number of older people working by an average 0.2 percentage points a year.
Yet I hear the number crunchers saying that leaves you 0.3% of GNI* short on your figures!
That shortfall has already been made up thanks to the higher participation rates in our workforce revealed by the Central Statistics Office earlier this year showing that we now have 65.1% of working-age adults engaged in the workforce. This is 3.1% higher than the baseline figures presented to the Committee in justifying the pension age increase. The Pensions Commission technical paper points out that in a scenario where the overall employment rate for the 20-64 age group was 2 percentage points higher than the baseline assumption then pension expenditure could be around 0.3 percentage points of GNI* lower than baseline in 2070.
So, we have more than made up this shortfall.
Now there is an argument that if you allow people to work beyond their 65th birthday, you are closing off promotion opportunities for younger staff in an organisation. However, the Civil Service has overcome this challenge for senior positions, by filling such posts on a 7-year basis, thus allowing new thinking and younger people to compete for such roles.
There is no reason why, for a change, the private sector can’t take a leaf out of the public service book!
Denis Naughten TD is the Cathaoirleach of the Joint Oireachtas Committee on Social Protection, Community and Rural Development and the Islands
The Committee report on pensions can be accessed here: https://data.oireachtas.ie/ie/oireachtas/committee/dail/33/joint_committee_on_social_protection_community_and_rural_development_and_the_islands/reports/2022/2022-02-02_response-to-the-report-of-the-commission-on-pensions_en.pdf