Pension changes and what it could mean for you

By October 24, 2022News

Over the last number of years, there has been an increased focus on potential changes to the social welfare system and retirement age, including changes to the pension age, the planned ‘Auto Enrolment’ scheme, and the ‘Transition Pension’. 

Our course leader Paul Kenny looks at what this will mean for you – when will you retire and what your pension might look like.  

People retire at different ages. Some have a fixed or contractual retirement age, some can choose their retirement age, while others are forced to retire by failing health, family or personal circumstances. Until recently in Ireland, the most common retirement age was 65 and the age that public service workers were obliged to retire. There has been a lot of change in the last few years, and many now have the option to defer retirement, often to 70.

Over the last three years, there has been widespread discussion about the age of payment of State Pensions.  This became a bone of contention in the leadup to the last general election and previously announced plans to increase the age of payment from 66 to 67 in 2021 and to 68 in 2028, were dropped.  The ‘Transition Pension’, which had been payable at age 65, had been discontinued in 2014, but last year saw the introduction of a bridging payment equal to Jobseeker’s Benefit from age 65 to 66, while the Government announced its intention to keep the State Pension age at 66.

The rationale for increasing the age of payment was the fact that Irish people are living longer – and better – now than in the past.  The average life expectancy of a 65-year-old has increased by 50% over the past 50 years, so pensions must be paid for longer to support people in their later years. This led to questions about whether the pension system can be sustained, because the proportion of retired workers compared to people of working age, is predicted to rise steadily.

The most recent development in the pensions space was the announcement by Minister for Social Protection Heather Humphreys TD that Government would introduce the option for workers to defer their retirement beyond the minimum age for payment of State Pension (Contributory), in return for increased pensions when they eventually do retire. Under the proposed plan, workers would receive an extra €15 a week for each year of deferral, and this is seen by some as the thin end of a wedge, designed to force workers to remain in employment right up to age 70.

But not everyone will be able – or will want – to work until 70. The Government is set to consider what supports can be extended to those who retire in their early sixties and logically, this must mean lower rates of pension payment. At the Retirement Planning Council of Ireland, we are very much in favour of maximum flexibility around the age of retirement.

There is another factor to be considered in relation to these changes – the method of calculating a worker’s entitlement and the amount that they will receive in their pension.

2024 will mark a shift from the present pension system, which is based on the yearly average of paid and credited PRSI contributions recorded for each eligible employee, which can be quite unfair.  For example, if a person works in Ireland for the first time before age 56, the averaging method could yield the maximum rate of pension, while a worker who entered the system at a young age and had an interrupted contribution history could receive a lot less.

The long-awaited move to the new Total Contributions Approach will mean that pensions will be calculated at 1/40th of the maximum for each 52 contributions and credits. Some workers will get less than what they would receive through the current system, but those who had to leave work to act as fulltime carers will benefit more from the new arrangement.

Whatever your projected retirement age – whether compulsory or voluntary – it is never too early to start your preparations. We recommend that you gather all the information you can about your entitlements and start planning for your retired life.

Paul Kenny is a course leader with the Retirement Planning Council of Ireland, delivering in person and online pre-retirement courses nationwide. Paul was appointed as Ireland’s first Pensions Ombudsman in 2003.