The 1956 National Insurance Act provided for, among other things, the payment of social security contributions and benefits including pensions at a flat rate. The revenue accrued from the contributions and the payments of benefits was administered by a National Insurance Fund.
The Fund was abolished in 1974. Both revenue and expenditure managed by it started to be administered through the Consolidated Revenue Fund.
In the long-term this change proved to be disastrous and detrimental to pensioners as the adequacy and sustainability of the first pillar State pension could not be properly monitored and adjusted according to the needs of pensioners.
It is a fact that with a ringed fenced system in place the mechanism could be more transparent, accountable, fair and finally practicable for the administration as well as for beneficiaries.
The introduction of the two-thirds pension in 1979 was a big step in the social area as it opened opportunities for all workers to have a pension and enhance their income on retirement. However, at that point in time, no projections were carried out to identify and assess what will be the financial impact on the sustainability of the system in about 30 years.
No measures were put in place to prepare for the increase in expenditure on pension when the baby boomers reach retirement age. No considerations were taken on board about the steady improvement in health services making it possible for older people to live longer and therefore earn more from pension entitlement.
Today’s reality is that pensions are inadequate and there are serious problems about the sustainability of the system. This is a fact acknowledged by the current administration as it is encouraging workers to have a supplementary pension to enhance their income when they retire. The problem is that it is not affordable for thousands of workers who earn low wages to pay for a private pension. Therefore their income security on retirement depends only on the State pension.
Today’s reality is that pensions are inadequate and there are serious problems about the sustainability of the system
The law also provides for a national minimum pension based on the national minimum wage as well as a maximum rate of pension equivalent to two thirds of the maximum pensionable income.
The pension reform began the downfall of the two-thirds pension in the name of sustainability. Amendments were made to the Act which can be considered as discriminatory for persons who were born on 31 December, 1961 and before.
It was unfair for current pensioners who paid their proper rate of contribution in terms of law when they were gainfully occupied to change the goal post and treat them differently on the basis of age. While the administration pontificated a lot about equality and liberal legislation such as equal marriage and LGBITQ rights it created and legalised inequalities in the two-thirds pension and in the service pension to the detriment of thousands of pensioners.
Presently there are two maximum pensionable incomes. One is for persons born on December 31, 1961 and before, which is €18,024 and another for persons born on January 1, 1962 and after which is €22,803. This change means that the former category receive €50 per week less in pensions than those of the second category.
To understand the current situation as regards pensions one has to note the changes that occurred in the rates per week of the national minimum wage, the national minimum pension and the maximum rate of two-thirds pension over a 20-year period.
Since 1998 the NMW went up from €106 to €178 euro per week; the NMP went up from €89.82 to €155 euro per week; the maximum rate of TTP went up from €189 to €233 per week. The latter is based on a cost of living of €3 per week for the period 2018 and 2019.
Percentage wise, the national minimum wage increased by €64 or 38 per cent, the national minimum pension increased by €57 or 38 per cent and the maximum rate increased by €42 or 18 per cent only.
These figures are worrying and of great concern to current pensioners and to those who will retire up to year 2026.
If the current trend persists, where persons who paid the lowest rate of contribution are enjoying better increases than those who paid the maximum rate of contribution, then the earnings-related system of our State pension can be thrown to the dogs.
Pensioners at risk of poverty should be assisted through non-contributory benefits as provided by the law already. Contributory benefits including pensions should be paid as indicated by the statutory conditions of the Act and not in other fabricated ways.
This is one of the first steps to betaken by the administration to address the problem of the sustainability of our pension system.
For various reasons our first pillar pension is on the decline. Early measures should be taken to safeguard our State pension as it is still considered to be the flagship of our pensions network and the only source of income for thousands of workers on attaining pension age.
Carmel Mallia is vice-president of the National Association of Pensioners.