In an effort to slow future pension costs and stimulate economic growth, in late June the Irish government enacted two laws that make a number of changes to the flat-rate state pension system (including an increase in the retirement age) and introduced a new 0.6 per cent levy on occupational pension assets. The laws provide legislative backing to the financial bailout package agreed upon in December 2010 between the Irish Government, the International Monetary Fund, and the European Union.
Under the current system, the normal retirement age for a State Pension is age 66, but workers can receive a transitional State Pension at age 65 provided they meet all eligibility requirements, including retirement from employment and self-employment. The first law passed in June, however, eliminates the transitional State Pension as of January 1, 2014, thereby making age 66 the retirement age for all workers. In addition, the law increases the normal retirement age for the State Pension from age 66 to 67 by 2021 and from age 67 to 68 by 2028. The government committed to increasing the retirement age in the bailout package as well as in its National Pensions Framework, released in March 2010.
The first law also encourages further economic stimulus by lowering the employer contribution rate from 8.5 per cent to 4.25 per cent, from July 2, 2011, until the end of 2013. (This combined contribution finances the State Pension as well as sickness and maternity, work injury, and unemployment insurance.) The contribution rate for employees of 4 per cent to 5 per cent of earnings, depending on the level of earnings, remains the same.
The second law, which introduces a 0.6 per cent levy on occupational pension assets, was passed in order to fund a new Jobs Initiative; the new initiative includes the creation of approximately 20,000 new posts and provides additional financial assistance and skills training. (Since 2007, there has been a significant increase in unemployment in Ireland, with registered unemployment rising from about 4 per cent in 2007 to 14.3 per cent in July 2011.) The levy is scheduled to run for an initial period of 4 years (2011-2014) and is expected to generate EUR 450 million (USD 644 million) annually, for a total of EUR 1.88 billion (USD 2.69 billion). According to pension industry estimates, some 65,000 current recipients of occupational pensions, plus an additional 700,000 workers covered by private-sector pension plans, will be affected by the new tax.
This article was extracted from the United States Social Security Administration publication International Update, August 2011.
Source: Social Security Programs Throughout the World: Europe, 2010, US Social Security Administration; "Ireland," International Update, US Social Security Administration, April 2010 and January 2011; Social Welfare and Pensions Act (No. 9) 2011; Finance Act (No. 2) 2011; Department of Social Protection press release (www.welfare.ie), June 2, 2011; "Live Register of Unemployed," Central Statistics Office, August 4, 2011.
Legislation date: 06.2011