The government is seeking to raise the state pension age, claiming that the fact that people are living longer is creating a “Pension Time Bomb”. Bríd Smith TD dismantles this claim and argues that the attack on the retirement age is part of the wider attack on all workers.
The government has been trying to justify raising the state pension age to 68 over the coming years, effectively forcing workers to work an extra three years. Before 2014, workers could receive a state pension at 65. The Fine Gael-Labour government removed the transitional pension and raised the age to 66. Plans to raise it again to 67 last year led to a huge campaign before the last election. Since then, the current government has been forced to concede a payment for those workers who leave the workforce at 65, albeit a payment that is still about €40 a week less than the pension rate.
After the last election, Fianna Fáil, Fine Gael and the Green Party set up a Pension Commission to look at raising the retirement age, knowing it would deliver the recommendations they wanted. Last year it did just that and supported raising the age to 68 over the coming years.
But a recent report from a Dáil committee has exposed the arguments and underlying assumptions behind the near hysteria about “the pension time bomb”.
Since the recession in 2008 there has been a constant clamour from economists and employers to “tackle” rising costs of the state pension.
The chief argument from the government and from some economists is that people are living longer and in the future the ratio between the number of workers in the labour force and the numbers of retired workers will grow and be unsustainable. Words like burden and dependency are used to convey the message; workers living longer is a “time bomb” that must be defused. The only solution is to defer the payment of pensions from 65 to 68 and later if need be.
Why do I say this is a false narrative?
Firstly, the calculation of the ratio between those of working age and those over 65 is an arbitrary and misleading one. We are told there are approximately 4.5 people of working age for every pensioner. This is set to decrease to 3.5:1 by 2030 and 2.3:1 by 2051. Even if it were correct, this actually means very little. It doesn’t tell us how productive those who are still working are, nor how dependent those over 65 will be, nor if the demographic trends are certain.
The fact that people are living longer should be a great cause for celebration. And not only are they living longer, but those extra years are healthier and more active for most than past generations. While they may be getting a modest state pension many are still active and productive and providing essential labour for wider society. They are not, in that sense, “dependent”.
The ratio used doesn’t tell us how many of those under 65 can and do work. Nor does it calculate how many over 65 will continue to work or would choose to do so if allowed.
The other end of this equation is also misleading. A modern IT economy means many workers must stay in education for much longer than they would have decades ago, so although under the state pension age they cannot join the workforce as early as before. At the same time many women are forced out of the workforce because of childcare costs. Many of those over 65 continue to play vital roles in society even if they have left the formal workforce. Most will be in good health and not dependent on health or other services in the same proportion to people of that age in previous decades. For example, it is only because of retired workers (whether grandparents or close family) providing unpaid child care for their family that many thousands of people can continue working.
So the ratio does not capture the real picture, nor does it look at how social and economic policies can affect the seemingly predetermined demographic trends. For example, provision of state-run creches and affordable childcare would also impact the number of women in the actual workforce, or available to work. Provision of affordable and secure housing could also affect how people plan to raise families.
Secondly, the expected cost of this “time bomb” is presented as a given and as an insurmountable fact that can only be avoided by raising the pension age. It is not. The commission calculated that the Social Insurance Fund deficit could reach €13 billion in 2050 if no changes are implemented. The “savings” predicted from raising the age to 68 are calculated as €3.8 billion in 2050. In fact, none of these are certain figures. Research shows that when the pension age was increased to 66 in 2014 it had little impact on the number of people who retired at age 65.
Many will still have to leave the workforce regardless of the state pension age, (whether because their job demanded it or it was not physically possible) and they will have to claim some social welfare support; thus reducing the supposed “savings”. The impact of forcing thousands to work longer will have unintended consequences and will not be cost free. As childminders and volunteers for many vital sectors are kept at work, this will have a knock-on effect on society.
What is not publicised by the government or the economists calling for these measures is the fact that raising the tax paid by employers could address any deficit. If the rate of PRSI paid by employers was raised by just 4-5%, it would add another 3 to 4 billion euro to the fund as highlighted in the Dáil report. This is more than the “savings” from raising the retirement age are predicted to yield. Workers will pay into the Social Insurance fund throughout their entire working life. Indeed, since the last recession they have paid additional taxes like the USC for little tangible benefit, while employers continue to pay the lowest PRSI rates in Europe. The first step in addressing this issue is to raise that rate to ensure that the Social Insurance Fund does not face any deficit.
Of course, the government will balk at the notion of raising taxes on employers but have no problem taking the “hard decision” to slash workers benefits or raise the retirement age.
Thirdly, the fact that the ratio may increase does not in itself constitute a “crisis”. By every measure available worker productivity has increased enormously over recent decades. Indeed, the gap between workers’ productivity and their pay has also widened. In the US, for example, workers’ productivity has increased by 61% since the 1970s, compared to wages which have increased by only 17%. The difference is pocketed as profits and helps to explain the widening inequality across many countries.
It is no different when it comes to Irish workers. Massive leaps in productivity over decades go side by side with a decreasing share of their overall share of the society’s wealth. In 1970, the share of national income for employed and self-employed workers was 89%. But by 2012, this had declined to 60%. The point here is that three workers in 2030 will be as productive as 5 workers were in 1970. Logically there is no need to fear that ratio or the ability of a society to support a population living longer if wealth and resources are distributed equitably and social supports are funded through taxes on wealth and profits.
As workers and unions fight the proposed changes, the wider arguments are coming under further scrutiny and being exposed. Behind the attempts to raise the pension age is a philosophy that never looks to raise taxes on employers or on the vast wealth that workers generate as profits during their working lives. Instead it seeks to reduce the rights and supports workers have fought for over generations. The real agenda behind the pension “time bomb” myth is a continuation of an ongoing war against all workers’ rights and entitlements.
We should not fall for this. We should defend the right to retire and, indeed, bring it back to 65 as a cornerstone of a decent society.