Pensions Commission report published

Brendan Burgess

Brendan Burgess

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Report of the Commission on Pensions

www.gov.ie www.gov.ie

By a significant majority (10 out of 11 members *), the Commission recommends a gradual incremental increase in the State Pension age by three months each year commencing in 2028, reaching 67 in 2031 (10 years from now), with further increases of three months every second year reaching 68 in 2039.
 

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Ignoring the age increase part for a bit, there are some good things in the highlights such as stopping forced retirement below the state age, although they have added a get out of jail free card there
  • Where possible, the same terms and conditions regarding the provision of insurance, financial services and related benefits should apply to all employees, subject to the availability of these benefits from providers and the cost not being disproportionate for employers;
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The PRSI expansions proposals could have other consequences outside of pensions as they are suggesting expanding Class K to cover unearned income.
 
I only skimmed it but a big proposal is to increase the rate of self-employed PRSI over time to over 10%.

Otherwise it doesn't seem very radical. State pension age would rise as previously planned, just more slowly.

Employers will be obliged somehow to keep people on after 65. I had always heard that this was difficult to legislate for as it related to essentially private contracts.

The proposal for a statutory body to make recommendations on indexation is a good one. It shouldn't be done ad hoc every year as part of the budget bonanza.
 
I think the proposal to remove the exemption from PRSI for those aged 66 and over is pretty radical.

It would significantly reduce the attractiveness of saving within a private pension, given that there is no relief from PRSI on pension contributions. Beyond a certain level, it would make no sense at all.

In general, I think the Commission's recommendations around PRSI are pretty crude.
 
Just heard the Commission's Chair on the radio admit that they really had no idea how much additional revenue would be generated by the recommended PRSI changes.

Doesn't exactly fill you with confidence that the Commission applied any analytical rigour in discharging their functions....
 
Sarenco said:
Just heard the Commission's Chair on the radio admit that they really had no idea how much additional revenue would be generated by the recommended PRSI changes.

Doesn't exactly fill you with confidence that the Commission applied any analytical rigour in discharging their functions....
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Indeed, especially when one considers the commission chair was head of the revenue commissioners.
 
Sarenco said:
Doesn't exactly fill you with confidence that the Commission applied any analytical rigour in discharging their functions...
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I am surprised that she did not have an estimate,however...

It's still the right idea. You can't give people who contribute €800 a year in PRSI full pensions for up to 30 years.

Brendan
 
Employees obviously do not pay income tax or USC on PRSI contributions made by their employers.

So, to be equitable, any PRSI contributions to be made by the self-employed over and above the rate paid by employees would have to be deductible for income tax/USC purposes.

That would dramatically reduce the return to the exchequer of simply hiking PRSI rates for the self-employed but it is completely ignored in the report.

To be frank, I think the report lacks any demonstrable rigour. Its recommendations are just plucked from thin air without any real analysis.
 
What annoys me about these reviews is the current state pension is close to useless for anyone planning retirement - more than say 10 years out.

What value will it be, how many contributions will they want, when will you get it - who knows.

For payments into the scheme the reviewers usually look at what happens across Europe, for payments out they ignore Europe.

I'd happily pay more into a scheme that matched some of our peers, and I think a lot of employers could live with it. Some of them would cover the cost by reducing their existing pension matching contributions.

For medium to higher earners the PRSI pension is the worst value of any country's scheme that I'm aware of (though maybe someone beats us), all proposed changes are to make it worse value.

As the IMF or OECD pointed out during one of their puzzled trawls through the Irish tax system during the financial crash, they could not distinguish PRSI from normal taxation. The payouts aren't Pay Related and it's arguably not Social Insurance.
 
Brendan Burgess said:
It's still the right idea. You can't give people who contribute €800 a year in PRSI full pensions for up to 30 years.
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I had forgotten that I had pointed out how ridiculously low the self-employed contributions were in my submission

Pre-Budget Submission: An account based system for PRSI

This is a submission I made to the Pensions Commission. I will update it as a pre-Budget submission The problems with the present system The present system is completely unsustainable. Tinkering with the contribution rates, pension levels or retirement age will not make it sustainable. The...
www.askaboutmoney.com
 
The Government needs a more holistic approach:
- introduce auto-enrollment (promised for decades)
- change State Pension calculation to Total Contribution Approach - 1/40th
- increase Self employed PRSI
- Increase State Pension Age (announced first nearly 10 years ago).
The Commission report is clearly a compromise document trying to please all sectoral interests, something that is impossible to do.
On the other hand, if SF get into Government we can expect:
100% MICA
Pension age back to 65
Big increase in State Pension
Lower taxes for everyone earning less than €140,000
Free housing for all
No property taxes
Nirvana
The SF money tree keeps on growing
 
I don't see any reference to the prsi applied to ARF's. The current rate is S class 4%.
Are we going to see a gradual increase to over 10% being applied to distributions from ARF's for people under 66 ? If the rate of prsi is increased on ARF's it would be a further blow to anybody making AVC's or paying into a PRSA.
 
Read the summary (I wasn't going to read the 245 page report!). For me, it lacks independence. In the first meeting, Humphrey's told them that decreasing the State pension wasn't an option. And we have since the pension go up by €5 in the Budget.

The gradual increase in pension age is very soft. There was legislation in place to increase the pension age to 68 from 2028. Now it is to 68 by 2039!

Increasing the top rate of tax on the self employed to 63.5% is political suicide. There are nearly 300,000 businesses operating in Ireland and most of them are small businesses.

I wrote about this report for my next blog and had a look over some of the other articles that I had written on other pension reports. The last one was the Pensions Roadmap 2018 - 2023. How many of those recommendations have been implemented? Zero.

This Pension Commission report is a waste of time.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
bstop said:
I don't see any reference to the prsi applied to ARF's. The current rate is S class 4%.
Are we going to see a gradual increase to over 10% being applied to distributions from ARF's for people under 66 ? If the rate of prsi is increased on ARF's it would be a further blow to anybody making AVC's or paying into a PRSA.
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No PRSI is paid by those over 66 and annuities aren't liable to PRSI at all. Under the recommendation, these will now be liable to PRSI as well as people still working past the age of 66. A 4% tax increase for the retired? Might as well put VAT on children's shoes!
 
Steven Barrett said:
What is the 6%? It was recommended that anyone over age 66 pays Class K PRSI. There is no recommendation to increase this class of PRSI.
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I am referring to a retired person with an ARF under age 66. Currently they pay prsi S class at 4%. Under the proposals this would increase to over 10% at class S. This is the 6%+ increase I am referring to. At a time when the government want to implement auto enrollment to private pensions this is a ludicrous proposal. It would be a further blow to people making pension contributions, on top of the previous blows of Michael Noonan removing funds, and no refund for PRSI and USC on contributions. Pensions are a very long term investment. Why would anybody enter into a long term contract when the government keep changing the rules to ones less favourable to the pension contributer.
 
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Steven Barrett said:
No PRSI is paid by those over 66 and annuities aren't liable to PRSI at all. Under the recommendation, these will now be liable to PRSI as well as people still working past the age of 66. A 4% tax increase for the retired? Might as well put VAT on children's shoes!
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Given that most people haven't contributed enough PRSI during their working life to fund their State pension why shouldn't pensioners pay full PRSI?

We know that we should be increasing the retirement age but it's not populist so we won't do it. Therefore we need to come up with alternative ways of funding it.
At the very least any increases in the State pension should be means tested.
 
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