Social Justice Ireland calls for a Universal State Pension

Social Justice Ireland strongly urges the Government to put the think tank’s fully-costed proposal for a universal State pension for every person aged over 65 on the table for discussion. The call comes as the Department of Social Protection plans to set up an expert group to examine a retirement savings scheme for private sector workers.

Social Justice Ireland’s proposal would:

• replace the existing State Contributory and Non-Contributory Pension;
• provide everyone of pension age with a weekly pension of €230.30 (i.e., the equivalent of the current State Contributory Pension), rising gradually over time;
• finance this pension not by increasing tax rates, but by adjusting our current system - principally by making tax breaks for pension contributions available to everyone at the standard rate;
• promote gender equality and reduce income inequality.

The concept of a basic universal State pension, based on residency, was one of two proposals made by the Organisation for Economic Co-operation and Development (OECD) in its April 2013 report (OECD Reviews of Pension Systems: IRELAND). This report was commissioned by the Department of Social Protection.

Social Justice Ireland’s own detailed study (A Universal Pension for Ireland), published in September 2013, set out a sustainable model that could deliver a universal guaranteed pension, also based on residency (see Notes for Editors below). This study acknowledged Ireland’s then worsening economic climate, showing that the cost could be fully funded by reducing tax relief on pension contributions and curbing tax benefits on private pensions that favoured higher earners. Social Justice Ireland’s ‘Budget Choices 2015’ policy briefing calculated that standard rating the tax break on all pension contributions together with adjustments to pension funds and tax free lump sums would save €710m, almost matching the €714m additional annual cost of introducing a universal basic pension from 1 January 2015.

Media reports suggest the Government’s inter-departmental group will focus on encouraging private pension coverage.

Over 80% of older people are reliant on the State pension for the majority of their income, Social Justice Ireland’s National Social Monitor 2014 confirmed. In 1994, 5.9% of people aged 65 or older were ‘at risk’ of poverty. This has fluctuated over the past 20 years, and currently stands at a shocking 12.1%.

Introducing a universal pension as proposed by Social Justice Ireland would:

• provide older citizens, regardless of their previous social insurance contribution record or means, a guaranteed income during old age;
• provide those older people who do not receive any support through the State pension system with a pension, thus achieving universal coverage;
• provide a secure and certain framework around which citizens can plan for their retirement;
• over time it would distribute income from the wealthiest in society to the poorest, creating a more egalitarian society; and
• ensure the long-term sustainability of the State pension system.

This analysis factored in a gradual increase in the universal pension from 2016, reaching 40% of average earnings by 2025. Using CSO data, the study mapped out the projected costs from 2014 to 2046, when the eligible pension population would more than double to 1.315m people. The study also clearly set out how this universal pension could be financed.

Ireland could have a universal pension for everyone over 65 by simply standard rating the current tax-break for private pensions, 80% of which goes to the better off. This approach would be simpler, fairer and more just as well as being sustainable in the decades ahead.

Key Characteristics of Social Justice Ireland’s universal pension proposal

• The universal pension would replace the State Pension (Contributory), State Pension (Non-Contributory), the Death Benefit and the Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension for all those above the State pension age. It would also be paid to those who are currently only receiving an income through their spouse or partner’s State pension as Qualified Adults aged 66 and over.
• The rate at which the universal pension is paid would be the current rate of the State Pension (Contributory), which is €230.30 a week. This would immediately raise the payments to those on the State Pension (Non-Contributory), two-thirds of whom are women, by a minimum of €10 a week. It would also provide a pension in their own right to those receiving the Qualified Adult increase for those aged 66 and over.
• The universal pension would be residency-based. Each full year an eligible individual is resident in Ireland between the ages of 16 and the State pension age they would accumulate a 1/40th or 2.5% increase in the universal pension. For example, if the State pension age was 66 and an individual had been legally resident for 30 years between the ages of 16 and 66 they would receive 75% of the full rate of the universal pension.
• On the introduction of the universal pension, all pensioners who had been in receipt of a full State pension - Contributory or Non-Contributory - would be allocated a full universal pension at the full contributory rate. Those pensioners who had then been in receipt of no State pension or reduced pension amounts - as Qualified Adults or on the basis of a means test or on their PRSI contribution history - would initially receive their current amounts. However, they would be entitled to apply to have their payment increased based on the length of residency in Ireland.
• If they have been resident in Ireland for 40 years, from age 16 to pensionable age, they would receive the full universal pension.
• No existing pensioner would lose out and many would experience an increase in the universal pension. In particular, adults aged 66 years and older who now receive reduced payments due to their status as ‘Qualified Adults’, would receive a universal pension in their own right.
• Qualified increases for children and adults under the age of 66 would continue to be paid on the basis that they are currently paid and the rate that they are paid would be a certain percentage of the universal pension rate. The increase for those aged over 80, those living alone and those living on designated islands would be maintained and the rate that they are paid would be a certain percentage of the universal pension rate.
• The universal pension would gradually rise after 2015 to 40% of average earnings by 2025. It would remain linked at 40% of average earnings thereafter.

[1] Policy Research Series, Social Justice Ireland, September 2013