Younger workers face paying an extra €2,500 in taxes so older people can still retire at 66 years of age

Younger workers face paying an extra €2,500 a year in taxes so that older people can retire at 66, the State’s budget watchdog warns today.

he true cost of keeping the pension age down amid an ageing population is laid bare by the Irish Fiscal Advisory Council.

It said people now in their 20s, 30s and 40s will foot the bill for Ireland’s growing number of retirees, which is estimated to rise by 50pc by 2040

According to the IFAC analysis, people earning an annual salary of €35,000 will pay an extra €2,000 a year in PRSI payments to fund the future pension pot.

That bill is €800 higher than it would be if the retirement age were raised by two years over the next two decades. The cost rises to €2,500 a year for someone earning €50,000 a year – €1,000 of which could be shaved off if the pension age were raised above 66.

The Pensions Commission had recommended an incremental increase in the state pension age to 67 between 2028 and 2031, before gradually rising to 68 by 2039. However amid political pressure the Government is set to keep the official pension age at 66.

The mounting pensions bill is “by far the largest challenge to the public finances in the coming years and decades”, IFAC warns in its pre-budget submission.  

Anyone who is planning to be in the workforce in the next 15 or 20 years will be paying some of these big increases in PRSI in the years to come

Volatile corporation tax receipts and the cost of climate change came a distant second and third to pensions as the burning issue for the state finances.

“Maintaining the retirement age at age 66 is a costly decision,” said IFAC chair Sebastian Barnes. “You’re looking at about a €2,000 increase [in PRSI payments per person], and a good chunk of that – almost half – is coming from the decision not to raise the pension age.

“So anyone who is planning to be in the workforce in the next 15 or 20 years – someone who is in their mid-40s maybe, and anyone younger – would be paying some of these big increases in PRSI in the years to come.”

There are currently around 50,000 people reaching retirement each year. That will rise to around 60,000 in the next decade and 75,000 by 2040 IFAC said.

There is sharp focus on workers’ pay following a new agreement being tabled on pay increases for the sector.

Taoiseach Micheál Martin welcomed the 6.5pc rise that was tabled by the Workplace Relations Commission following lengthy talks between unions and the Government.

The public sector unions will now ballot their members on the proposed increase, which would be introduced over the course of 18 months.

Mr Martin said the additional offer from the Government recognised that workers in Ireland were living in “extraordinary times”.

“I think it’s a fair agreement,” he said. “I think we’re going through and will be going through a very difficult period economically because of the war in Ukraine.

“That is a fundamental factor in all of this and particularly on the energy prices, which is feeding into inflation.

“And so therefore we need harmony, we need to work on this one, through this crisis in a collective way and, in that context, I would hope and would recommend that the deal will be accepted.”

IFAC chair Mr Barnes said the 6.5pc staggered pay rise for the public sector “does give the Government more margin of manoeuvre to help the most vulnerable households. That is, in a way, a constructive signal that there isn’t going to be full compensation [for inflation] because that can’t happen for everyone in the economy.

“You don’t want to be in a position where every sector is bargaining against every other sector to push pay.”

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