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?The amount of money spent on the state pension has jumped by 50pc over the last decade, with a prominent watchdog now warning of an impending “iceberg” of surging costs.
New figures from the Department of Social Protection show Ireland spent €9.4bn on state pensions in 2022, up from €6.5bn in 2013.
Spending on pensions has now nearly doubled since the peak of the boom in 2007, when it stood at just under €5bn per year.
Experts have said this is the start of an enormous issue facing the nation. Ireland’s pension costs will soar in the coming decades as the population gets older and more people reach pension age.
At the same time, there will be fewer young workers paying taxes to help fund pension payments.
Michael McMahon, the chair of the Irish Fiscal Advisory Council (IFAC) told the Sunday Independent the Government should immediately act to avoid pension costs spiralling.
“Whatever you see over the last 10 years is the tip of the iceberg,” he said.
“We call it an iceberg because the pensions issue is there on the horizon. It’s coming, it’s predictable, and it will be big.
“You’re starting to see the effects now of it rising, but it will bite in a big way from 2035 or so.”
The Department of Social Protection figures also show the number of people claiming the state contributory pension has jumped by 47pc over the last decade, from just under 330,000 in 2013 to almost 485,000 in 2022.
State pension costs are expected to double again in the coming decade as the number of people claiming payments continues to rise, leaving the State with an enormous bill.
This could then lead to higher taxes on workers, or people may have to work for longer to qualify for the full state pension in the coming years.
?Experts are also worried this could lead to inter-generational resentment if younger workers finance the retirements of older generations, while not being entitled to the same benefits themselves.
“The question has to be ‘what’s the right burden inter-generationally’, so you don’t burden kids now with a really different tax environment when they grow up,” McMahon said.
People currently qualify for the state pension at 66. This was set to be raised to 68 to help ease the pressure on the public finances.
However, after becoming a major issue during the 2020 general election, the plan to raise the state pension age was scrapped.
The Organisation for Economic Cooperation and Development (OECD) said the Government should reintroduce the planned pension age increase, saying keeping it at 66 will leave a major hole in the state’s finances in the coming years.
However, the Government has said it doesn’t plan to revisit the issue and will instead look at measures such as increasing PRSI, although it has given no indication of how much, or when, this will rise.
IFAC previously said the Government should use windfalls from corporation tax to build up a state pension fund.
It has been estimated that about €12bn, or half of all corporate tax over the last year, was a “windfall”, meaning it could not be relied upon in the future.
“If you take all of the Government’s estimates of windfall corporation tax between now and 2026 and you put that all into a fund, the sum value would be around €48bn,” said McMahon.
“If you generated a 5pc return, which isn’t an extreme return, you get €2.5bn a year. If you reinvest that for 10 years, that’s an extra €25bn or so.
“Then by 2035, when pensions start becoming a big issue, we would have a fund of about €75bn to help.
McMahon said by this time the returns from the fund, which would likely amount to several billion a year, could be used indefinitely to help meet state pension costs.
Despite the challenges, McMahon said it should be recognised that the problem of the state pension is itself actually somewhat of a positive development.
“Part of this is a good news story. In 1950 when you turned 65 you could expect to live until about 78. Now it’s 85,” he said.
“So we’re living longer, healthier lives, but we also have a state pension age which has increased by just a year since the 80s.”
Jerry Moriarty, the CEO of the Irish Association of Pension Funds, said the fact state pension payments have already increased by 50pc over the last decade is a concern.
“It is indicative of the ageing population we have,” he said.
“Some of it will be down to inflation, but it’s also because we just have more pensioners.”
Moriarty said a worry is that, as the pension issue will be a bigger one in the future than the present, politicians may continue to delay dealing with it.
“It would be pain now for gain later, but that doesn’t always suit the political timetable,” he said.
“The earlier you take action with this, the better it will be. You can be analysing and consulting and researching forever, but you just need to actually do something.”
Read the original article here.
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