What is the current rate of the state pension?
€265.30 for the contributory state pension and €253 for the non-contributory state pension. Only two-thirds of recipients get the full rate.
What would the rate of the state pension be if it was benchmarked to average earnings?
In 2024, it would be €318/week, €53 more than the top rate contributory state pension at present.
Why should the state pension be 34% of average earnings?
First proposed in 1998, this pledge is developed in The Roadmap for Pensions Reform 2018-2023 and The Roadmap for Social Inclusion 2020-2025, and a technical analysis of the benchmark is conducted as part of the Report of the Commission on Pensions. The Minister for Social Protection has pledged to bring an “input” on benchmarking the state pension into Budget 2024, but this is not the legal certainty that is required.
The 34% benchmark would go some way to reducing the high pension inequality faced by women, carers and people with disabilities.
Will 34% of average earnings eliminate poverty among older people?
No, unfortunately not. But it will provide security because people will know that the pension will increase automatically. Benchmarking would take the politics out of the state pension.
Pension income would need to be 40-50% of average earnings to ensure people are not in poverty in older age. People will need to save for retirement to maintain their living standards, including via auto-enrolment and the important role of occupational pension schemes and personal pension savings.
Why earnings not inflation?
Earnings grow more over time, therefore benchmarking the state pension against earnings will provide older people with a fair share of economic prosperity.
But both is better, which the government has acknowledged in the proposal for ‘smoothed benchmarking’, which will link the state pension to average earnings but give a boost to pension incomes when inflation is higher than earnings growth, after which earnings will have to catch up before the pension would go up again.
Why is legal certainty about benchmarking required?
Without legal certainty, the state pension rate would remain a ‘political football’ in the annual budget, which is why it should be automatic—just like the government is proposing for the annual indexation of income tax bands against inflation.
Weren’t the €12 and one-off payments enough?
No, while welcome, the state pension still lost spending power despite the €12 increase. The one-off payments were not enough to bridge the gap, plus not everyone got them and they only last for one year after which the lost spending power is even more of a problem.
Is it affordable to raise the state pension?
Yes. Raising it by €53/week would cost approximately €1.7 billion/year, at a time when tax and PRSI revenue was €35.4 billion higher in 2023 compared to 2020, which is an increase of over 52%. While revenue linked to multinational corporations may be unsustainable, the state still has strong public finances that can afford to lift older people out of poverty.
In 2021, Irish public spending on old age social protection was 3.5% of GDP or 6.4% of modified GNI, making Ireland the second lowest spender on old age social protection in the EU. The average across the EU was 10.8% of GDP.
Isn’t the Irish state pension rate one of the highest in Europe?
It is sometimes said that the rate of the Irish state pension is higher than in most other EU countries, but this is a deceptive claim.
In Ireland, there is only one tier of state pension providing a basic rate for all, with not everyone getting the full rate. In every other EU country, there is a second tier, top-up state pension based on previous earnings or contributions in addition to the basic rate.
In 2021, in Ireland, pensions from all sources received by people aged 65-74 replace 39% of the earnings from work of people aged 50-59. The EU average was 58% and the highest rates were 81% in Luxembourg and 79% in Spain. Because of the lack of a second tier, Ireland’s pension system had the third lowest income replacement rate in the EU.
Aren’t poverty levels among older people low?
No level of poverty is acceptable, especially for an older person who has no capacity to earn more money to change their circumstances.
The Survey of Income and Living Conditions (SILC) 2022 showed that one in five people aged 65 or older (19%) was at risk of poverty, up from one in ten (9.8%) in 2020.
One in three (33.6%) older people living alone was at risk of poverty, up from one in five (20.5%) in 2020.
Has keeping the state pension age at 66 made raising the state pension unaffordable?
No. Ireland has one of the youngest populations in Europe, and will still have the sixth youngest population by 2070, according to Eurostat projections. This means that we will have the economic capacity to fund a decent state pension and a pension age of 66.
We do have to increase funding for the state pension due to our ageing population, but most of the extra cost is due to the good news that more people are living longer. The Commission on Pensions found that raising the pension age to 68 would only reduce the cost by 16%, with 84% of the extra cost of the state pension due to growing numbers of older people. The Commission calls for PRSI increases to cover the cost of the state pension.
As shown earlier, Ireland’s spending on old age social protection is among the lowest in the EU, so there is a lot of scope to increase that spending without going beyond typically European levels.