Written answers

Tuesday, 24 May 2016

Department of Social Protection

State Pensions

Photo of Mick WallaceMick Wallace (Wexford, Independent)
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286. To ask the Minister for Social Protection if he will consider lowering the starting age for the State pension to 65 years of age to bring it in line with the general age of retirement; if his Department has carried out a financial impact assessment of such a measure; and if he will make a statement on the matter. [11468/16]

Photo of Leo VaradkarLeo Varadkar (Dublin West, Fine Gael)
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The Social Welfare and Pensions Act 2011 provided for increases in the State pension age over a period of years. This process began in January 2014 with the abolition of the State pension (transition) previously available at 65, thereby currently standardising State pension age for all at 66 years. The changes introduced in 2011 were on foot of a Government commitment included in the National Recovery Plan published in 2010 and in the subsequent Memorandum of Understanding with the EU/ECB/IMF.

The purpose of these changes is to make the pension system sustainable in the context of increasing life expectancy. More people are living to pension age and living longer in retirement. In this context, the duration for which an average pension will be paid will continue to increase. The number of pensions is increasing by approximately 17,000 annually as a result of demographic change. This has significant implications for the future costs of State pension provision, resulting in an additional cost of some €1 billion every 5 years, before other factors, such as rate increases, are factored in.

In 2013, the cost of the State pension (transition) was €137 million. While its abolition would not realise that saving in full, as some people who were affected would alternatively claim working age payments such as Jobseeker's Benefit (although at a lower rate than that of the State pension), and some may have claimed for Qualified Adults on their spouse’s pension, it is estimated that well over half of that cost may have been saved each year as a result of this measure.

The Deputy should note that there is no general retirement age in the State, and the age at which employees retire is a matter for the contract of employment between them and their employers.

In terms of financial supports, social welfare benefits will continue to be available to the age of 66 for those who are contractually obliged to leave employment. Jobseekers whose benefit expires in their 65th year will continue to be paid benefit up until the age of 66. Where a jobseeker’s benefit claim spans two benefit years, a new Governing Contribution Year requirement is not applied to the second benefit year of a claimant aged 65 (effectively this means that they may receive payment in both years based upon eligibility in the first year).

There has not been an economic impact assessment of the effect of the abolition of the State Pension (transition). In terms of the broader economy, an increase in experienced people working longer in the economy would be expected to increase total economic output, and improve tax revenues. Furthermore, the Exchequer savings generated by the abolition of the State pension (transition) has eased pressure on Exchequer finances, and allowed the rate of pension to be maintained and increased in Budget 2016. The net financial impact on individuals aged 65 years will vary quite significantly, depending on their circumstances. Some will continue working and receive a higher income as they are still in employment, some may claim alternative social welfare payments (such as jobseeker's benefit or illness benefit) and they may have a reduced income for the duration of that year, while others who do not wish to work or claim benefits may qualify for an Increased Qualified Allowance on a spouse’s social welfare payment. There may also be a further cohort who may cease work at 65 but may decide against making a claim for any social support.

There are no plans to introduce legislation to change from the current position, as doing so would result in a significant cost to the Exchequer and further undermine the sustainability of the pension system, which already faces significant demographic challenges.

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