Tommy Broughan (Dublin North East, Independent)
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59. To ask the Minister for Social Protection her plans to reverse the changes that increased the State pension age from 66 years to 67 years in 2021 and to 68 years in 2028; and her plans for reforming pension schemes. [9539/15]

Joan Burton (Dublin West, Labour)
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State pensions account for the single largest block of social welfare expenditure, and expenditure on pensions is increasing annually due to demographic pressures. This year, the Department of Social Protection will spend an estimated €6.675 billion on pensions – 34.4% of all welfare expenditure and an increase of €168 million over 2014. While there have been significant real increases in pension rates over the last decade, the biggest long-term challenge to the sustainability of the pension system has been increased longevity, which is resulting in longer duration of pensions, without any corresponding increase in the PRSI contributions paid to finance them. Encouraging longer working is part of the strategy to address the issue of sustainability of the State pension without undermining its adequacy.

There are currently 5.3 people of working age for every pensioner and this ratio is expected to decrease to approximately 2.1 to 1 by 2060. The over 65 year old population is projected to increase from 11% of the total population in 2010 to 15% in 2020, and to 24% in 2060.

The Actuarial Review of the Social Insurance Fund projects that without action to tackle a shortfall, the deficit will increase significantly over the medium to long term to €3bn for 2019 and €25.7bn for 2066. It is in this context, and mindful of the importance of maintaining the adequacy of the rate of the State pension, that a number of reforms been introduced, in order to provide for sustainable pensions and to facilitate a longer working life. State pension age is being increased in three separate stages. In 2014, the State pension age was standardised at 66 by the abolition of the State pension (transition). The State pension (transition) had been criticised as it required workers to retire in order to receive a pension from 65 (no such requirement applies to the State pension contributory). While such workers could re-commence work at 66 when moving to the State pension contributory, most did not as they had already retired, and many would not have been in a position to do so even where they wished to. The pension age will be increased to 67 in 2021 and 68 in 2028. It is anticipated that this rate of increase in pension age will be no faster than the rate of increased longevity. It is also anticipated that the duration of a typical State pension may continue to increase, albeit more slowly than if these increases in pension age were not provided for.

There are a number of other reforms of the pension system being considered, and it is planned to replace the current ‘yearly average’ method for calculating State pension (contributory) entitlement with a fairer ‘total contributions’ approach. There are, however, a number of legislative, administrative and information technology system related issues to be addressed before this change can be put in place. It will also be important to ensure that those who spend a number of years out of the workforce on caring duties are not disadvantaged by this approach. It is not anticipated, therefore, that this change will be in place before 2020, although it is planned that the details of the new system would be announced well in advance of it taking effect, to allow workers good time to make decisions relevant to their retirement income.

The OECD report on the Review of the Irish Pension System confirmed that the reforms that have been introduced are necessary if we are to continue to put pension provision on a sustainable footing given increased life expectancy, the deficit in the Social Insurance Fund, and the increasing cost of pensions into the future.