The Government are looking at the whole system by which Irish workers contribute to their standard of living after they retire from work. As I understand it, listening to all the pundits discussing the matter this week, broadly speaking there are essentially four types of pensions in Ireland. You have public sector pensions, the state contributory pension (not means-tested), state non-contributory pension (means-tested), and the ever elusive private pension.
Public sector pensions are paid to all state employees such as members of the Defence Forces and An Garda Síochana, teachers, nurses, civil servants etc on retirement, once they have served the country for enough years. Public sector pensions are guaranteed by the state (tax-payers) and while in theory public sector workers pay into their pensions during their working life, the pensions they receive are extremely generous, and for the last number of years the Government has been paying these pension liabilities (along with all other state pensions) out of the state’s current account.
Now, the state contributory pension is available to all workers who have paid the requisite number of class A, E, F, G, H, N, or S social insurance contributions during their working lives (currently between 16 years of age and 66 years of age). There are all sorts of rules applied to qualifying for this pension (whether a full pension or a pro-rata pension), but most people who work most of their lives and pay PRSI and PAYE will be entitled to some form of contributory pension when they retire, including the self-employed since the late 1980s. Currently, the pension age is 66, interestingly, if you have an entitlement to the state contributory pension, you are entitled to work and earn as much as you like (if anyone will have you) without affecting your pension entitlement. The maximum rate of this pension is €243.30 per week.
However, in contrast to the contributory pension, the non-contributory pension is somewhat more straight-forward. If you are of pension age but don’t have an entitlement to a contributory pension, or if a non-contributory pension would be more beneficial to you, you can seek to be means-tested for entitlement to a non-contributory pension. If you seek to be means-tested, the state will take into consideration your cash income (including income from work), the value of capital (for example, savings, investments, cash on hand and property but not your principle private residence), and any income from property personally used. Now, if you can prove that you are not of means, the maximum weekly rate of non-contributory pension payable is €232.00. Now, even if you have some income, you might still be entitled to a non-contributory pension, provided it is less than that of the maximum rate. For example, if you have income from work of €50 a week, and it is your only means, you should be entitled to a weekly non-contributory pension of €182.00 per week.
So, what’s all the talk about? The problem facing the nation is that we are living longer and there are more of us who are totally dependent on the state pensions for support in retirement. Today, 66% of private sector workers have made no provisions for a private pension. That means many private sector workers will have to survive on less than €250 a week in their old age. Do you think that is something you would like to have to do? Remember, retirement could account for almost one third of your life (if you’re lucky). Could this piecemeal amount sustain you through those golden years? If you don’t then you might want to consider a private pension. Currently, private pensions are voluntary for all workers. The Government are exploring the possibility of an opt-out system of private pensions for private sector workers, which would see the Government and your employer contribute equally with you to a private pension. This is often referred to as the 1-1-1 system and is used in other parts of the world. So, for every €1 you contribute to a private pension, your employer would contribute €1 and the state would contribute €1. The system would be voluntary but unless you specifically opt-out of the system, it would be applied to your pay packet. Now, all this is just talk at the minute but no doubt something has to be done to mitigate the impending pension bomb that is coming down the tracks.
Perhaps Pascal and friends will make positive changes to our PRSI, PAYE, and USC system to build up the state pension fund before the ratio of retirees to workers is out of kilter. It is worth nothing that before the economic crash in 2008, the state pension fund was worth a whopping €18-billion, but most of it has gone to pay our banking debt. Is it any wonder those of us who go out working on a daily basis feel disenfranchised by the system. And on that note, I leave you with this gem; stress at work doubled between 2011 and 2016 from 8.5% to 17%.