PRSI should be 'set at a constant rate' to finance the pension system going forward, a new report has said.
A long-term approach is needed when it comes to managing and funding the pension system, the Irish Fiscal Advisory Council has said.says Ireland's rapidly ageing population will put"increasing pressures" on the State pension in the years to come.
"The current 'pay-as-you-go' approach to funding the State Pension means that today's PRSI contributions are broadly used to meet today’s pension payments," it says."By 2050, the number of people reaching the retirement age of 66 will be 50% higher than it is today".
"This would be achieved by raising contributions from the baby boomers while they are working. This would reduce the burden on future taxpayers," it says.The paper shows that this funding approach would require the combined employee and employer's PRSI rates to rise by about 3.5 percentage points over the current rate of 15%.
This is around half the increase that would be required under proposals from the Pensions Commission."This increase in PRSI rate would be even lower again if 'excess' Corporation Tax receipts were to be allocated to the fund to help finance future pensions, hence reducing the burden on future taxpayers".
It says moving towards this model may lead to the creation of"significant pension reserves", if demographic variations are smoothed by requiring current generations to contribute more and limiting the increase in PRSI rates for future generations.A similar approach was attempted here in the past with the establishment of a National Pension Reserve Fund in 2001.However, the proceeds of this fund were largely used to bail out Irish banks during the financial crisis.
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