Workers will face a number of PRSI increases over the coming years to fund a government delay in raising the state retirement age as part of new proposals.
Eleven employees will initially bear the brunt as their contributions will rise from 4 to 11 percent in the coming years.
The move would affect up to 331,000 people who are self-employed in the state.
Other workers will also endure some of the pain from rising PRSI rates, though it wouldn’t happen until the 2030s.
A confidential draft of the Pension Commission’s report, viewed by the Irish independent, shows that future generations of workers and employers will be affected by increases if its recommendations to finance the state pension system are accepted.
the Irish independent announced this week that the commission recommends halting the increase in the age at which people are eligible for state pensions.
The state retirement age is currently 66 years. In its report, the Commission recommends increasing the retirement age by three months per year from 2028 to 67 in 2031 and 68 in 2039.
However, the proposed reform package to “address fiscal sustainability” also includes PRSI increases and a state contribution to support the system.
The self-employed would see the PSRI increases first. Their rate would initially increase from 4 to 10 percent by 2030.
It would move at a higher rate – which is now 11 percent – before increasing another 2.4 percent by 2040 and 0.1 percent by 2050.
There would be no increases for employees or employers until after 2030, but they would pay 1.35 percent more until 2040.
The report also recommends that the Treasury Department contribute 10 percent of its spending annually to the state pension. The commission was set up to examine the sustainability of the pension system as the costs will rise sharply due to an aging population.
“Fortunately, people are living longer and healthier than previous generations,” the report said.
“A 65-year-old man has a life expectancy of 18.2 years, a 65-year-old woman a life expectancy of 20.9 years.
“This has increased by about five years over the past two decades and is expected to increase by another three years over the next two decades.”
The draft report states that an increase in the retirement age to 67 this year had been noticed “to a remarkable extent” in last year’s parliamentary elections.
After public outcry, the increase was postponed until the commission’s report.
“This public concern continues and has been confirmed in subsequent surveys and in many submissions to the Commission.”
The report states that the focus is on PRSI for the self-employed “for the sake of fairness and equity”. It is said that their prices are “remarkably lower” at 4 percent.
It considered four options for funding the system, including one that would rely solely on PRSI increases. The other options would mean bigger PRSI hikes that would start reducing wage packages sooner.
Other important recommendations are:
:: The retirement age in employment contracts should be brought into line with the state retirement age by law. This would mean that an employer could not set the statutory retirement age below the statutory retirement age.
:: Raising the state pension in line with wages or inflation instead of continuing state announcement practice on budget day. She recommends the “immediate implementation” of benchmarking and indexing.
:: Those who have passed the state retirement age and are currently exempt from PRSI should pay it “in solidarity”.
:: Removal of the PRSI payment exemption for supplementary and public sector pensions.
:: The possibility of deferring the state pension until the age of 70 if they would receive an increased weekly payment.
The Commission says it has considered four “policy levers” to cover projected deficits in the Social Security Fund.
These included an increase in PRSI rates, a broadening of the PRSI base, an increase in the state retirement age and a new annual contribution from the state treasury to the state pension fund.
Using either of these levers alone to cover the deficits in the Social Security Fund “would require a change so extreme that it would be impractical or even impossible”.
The state pension system should continue to be financed on a pay-as-you-go basis. However, she recommends setting up a separate social security account.
It supports annual tax contributions to this account rather than subsidies when it falls into a deficit.
“At the first meeting of the commission, the Minister for Social Protection, Heather Humphreys TD, made it clear that the government will not lower the current rates of state pensions,” it reads.
“The Commission agreed from the outset that the program commitment to ‘keep the state pension as the bedrock of the Irish pension system’ requires that the state pension continue to have the overall objective of ensuring that at least the pension paid to the beneficiaries is achieved sufficient to protect pensioners from poverty. “