Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

This is nothing to do with austerity. Thankfully, in Ireland, austerity has been over for more than three years. As a result of that, unemployment is a third of what it was not too long ago in 2012, incomes are rising, poverty and deprivation are falling and, as we know from the figures from the CSO survey on income and living conditions released the other day, income inequality is at its second lowest since records began. We have delivered on all of those in the past couple of years and secured a position where we are one of the fastest-growing economies in Europe, which I thank the Deputy for acknowledging. I accept the back-handed compliment that our policies have been successful but this is not about austerity. The objective of this policy is to make sure the State pension continues to be adequate and sustainable in the long term. We have one of the highest State pensions in the EU and we want to keep it that way and to keep increasing it over the next couple of years in line with inflation if not with wages. That is what we should aim to do.

We also want to make sure that we will still have a State pension system when people who are now in their forties and fifties retire. The way it works is that people and employers pay PRSI and it all goes into the Social Insurance Fund, out of which comes the State contributory pension. Because the economy is now very strong, the fund is in surplus. However, it is projected to go into deficit because of our ageing population and changes in demographics. If the economy was to slow down or another downturn occurred, it would go into deficit very quickly so we need to act now. When this system was set up in the 1970s, circumstances were very different. The average man lived to approximately 68 years of age while the average woman lived to approximately 72.

People paid a relatively small amount of PRSI every year but were only retired for a short amount of time.

The change since then has been wonderful, in that life expectancy has improved. Most people now live into their 80s, which is brilliant, but comes with the consequence that the cost of pensions is rising all the time, and will rise faster than the rate at which PRSI is paid into the Social Insurance Fund. We have to act by either significantly increasing PRSI or increasing the retirement age. We think the prudent thing to do is to increase the retirement age in line with life expectancy. It still means that people get ten or 20 years of retirement, but the retirement age is increased in line with life expectancy. That makes sense because, if we do not do that, the Social Insurance Fund will go into deficit and we will face a pension crisis. We would then be in a position where pensions would have to be reduced. We never want to do that, we want to keep increasing pensions in line with inflation and earnings.

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