Thomas Lyons 
The Irish Advisory Fiscal Council has called for additional PRSI contributions to be levied on baby boomers while they are working, in order to ensure younger people are not financing older generations’ retirements. This is part of a proposed overhaul of the pension system in Ireland which would see the establishment of a State Pension Fund to help address the increasing pressure that the current system will come under in the next decade.
The budgetary body has warned that by 2050, the number of people reaching retirement age will be 50% higher than it is now. In a new paper, the Fiscal Council argues that a new long-term approach needs to be taken to manage and fund the pension system going forward.
Under the current system, beneficiaries of the State pension are paid using PRSI contributions from people working today. The council suggests moving towards a system where the PRSI rate is set at a constant rate to finance the pension system over the long-term, rather than year-by-year, to avoid the need for larger rate increases in the future on younger workers to finance the retirements of baby boomers. To achieve this, the council has proposed raising contributions on the baby boomers.
“By raising rates in the next couple of years and taxing the baby boomers while they are working, this would avoid larger tax increases in later years,” the paper said, adding that this would require the combined employee and employer’s PRSI rates to rise by about 3.5% over the current level of 15%.
The paper further argues that saving excess corporation tax receipts could help to fund future pensions, reducing the burden on future taxpayers. It also suggests that governments should be required to have credible plans to finance the Fund on a very long-term basis, with the paper projecting an accumulation of a State Pension Fund of 40% of gross national income by the second half of this century.
The Council’s chairperson Sebastian Barnes believes taking steps now to raise the PRSI contributions and plan for the long-term would “avoid much larger PRSI increases in the future”.
“Ireland has a historic opportunity to put the State pension system on a solid footing for decades to come and to put corporation tax windfalls to good use,” he said.
The Irish Advisory Fiscal Council has put forward a proposal for a complete overhaul of the pension system in Ireland, in order to address the increasingly difficult situation the current system will face in the coming decade. With the number of people reaching retirement age set to increase by 50% by 2050, the Council has called for additional PRSI contributions to be levied on baby boomers while they are still working.
The paper suggests setting the PRSI rate at a constant rate over the long-term, rather than year-by-year, which would avoid the need for larger rate increases in the future on younger workers to finance the retirements of baby boomers. To meet this goal, the council has proposed raising contributions on the baby boomers, which would require the combined employee and employer’s PRSI rates to rise by about 3.5% over the current level of 15%.
The paper also proposes that saving excess corporation tax receipts could help to fund future pensions, reducing the burden on future taxpayers. The paper projects an accumulation of a State Pension Fund of 40% of gross national income by the second half of this century, and suggests that governments should be required to have credible plans to finance the Fund on a long-term basis.
Commenting on the proposal, the Council’s chairperson Sebastian Barnes said that taking steps now to raise the PRSI contributions and plan for the long-term would “avoid much larger PRSI increases in the future”. He believes that this is a historic opportunity for Ireland to put the State pension system on a solid footing for decades to come, and put corporation tax windfalls to good use.
