A quick blog to share some thoughts on the new about the State pension age.
At the moment at 66 you can access the state pension. The full contributory pension is approx €13,000 a year.
For lots of people, that’s going to be all or maybe a lot of their retirement income, so it’s pretty material.
The news is about a recent Oireachtas Committee recommended keeping it to 66 going against a previous recommendation by the Pension Commission who recommended to start to move access to the State Pension to age 68.
The problem with keeping access at age 66 is that it’s not financially feasible for the Government.
At the moment, for every one person retired, there are four and a half people working, so four and a half workers taxes can support one person’s annual state pension.
Whereas on current projections in 2050, that’ll be two people working for one person retired so two workers taxes can cover one person and state pension. So it’s not sustainable from a government finance point of view.
Unfortunately I think changes would have to be made and it’s going to be a reduction in accessibility or a lower annual pension.
If this is the case we need to put a far greater emphasis on private pension funding, to counteract any reduction in the state pension.
Autoenrollment would be a solution to increase Private Pension Funding and has been spoken about for quite some time.
Autoenrolment has been rolled out in the UK successfully. It means that employers have to set up and contribute to a pension for an employee, and the employees have to match the percentage of their salary.
Initially it starts at a low level, so maybe the employer would contribute 2% of employee salary and the employee would match that.
At the moment, in the current economy with inflation, I think it’s going to be a difficult thing to do, so there will have to be the right supports in place for a tax point of view of a government point of view.
But I do think any reduction in the state pension will have to be offset by a broader plan on increasing private pension funding.