The Labour Party has consolidated its ongoing commitment to address the needs of older citizens. To fully appreciate the measures announced during the unveiling of next year’s budget, we must first understand the context in which they have been introduced.

HOW IT WAS THEN, AND HOW IT IS NOW

In 2013, the investment allocated for pensions stood at €610 million. This figure is set to increase significantly to €1.2 billion by 2025.

In 2013, the age of retirement for women and men was increased from 60 and 61 years, respectively, to 65 years. In contrast, the proposed regulations for 2025 do not change retirement age.

Social security contributions experienced a significant rise under the Nationalist administration, increasing from 8.3% to 10%. In contrast, the Labour government opted not to raise these contributions, thereby allowing pensioners to retain more of their funds.

Under the Nationalist administration, pensioners received no benefits if they had insufficient pension contributions. In contrast, the Labour government introduced a bonus system, enabling pensioners to receive an annual bonus ranging from €550 to €1,000 by 2025, even if their contributions fell short.

There were no incentives for continued employment beyond retirement age under the Nationalist admi. In contrast, the Labour government introduced significant incentives, offering an additional pension increase of between 6.5% and 29% for those who continued to work for one to four years beyond the age of 61.

Under the Nationalist administration, pensions were taxed according to standard tax rates. However, under the Labour government, pensions are no longer subject to taxation, including any additional income, provided the total does not exceed nearly €30,000 in 2025.

WHAT’S IN FOR 2025

Tax Exemptions for Pension Income

As previously announced in the 2022 budget, the Government plans to increase the amount of pension income exempt from tax for working pensioners. By next year, this amount will rise by 20%, bringing the total exemption to 80%.

Occupational Pensions

The Government is committed to ensuring a sustainable future for pensioners by encouraging a savings culture.

Main initiatives include:

• Incentives for Private Pension Plans: The Government has introduced fiscal incentives to encourage the public to invest in private pension plans and has incentivised employers to contribute to these schemes.

• Mandatory Opportunity for Occupational Pension Plans: Employers will be required to offer their employees the chance to join an occupational pension plan. While they are not obligated to contribute, the Government will match employee contributions up to €100 monthly for its employees.

• Accessibility for Existing Plan Holders: Those already enrolled in private pension plans can also join an occupational pension plan and benefit from the same fiscal incentives.

• Implementation Timeline: Further details are to be finalised through discussions with relevant sectors and social partners, aiming for implementation by mid-next year.

Increases in Pension Payments

To support pensioners, the following adjustments will be made:

• Weekly Pension Increase: Pensioners will receive an additional €8 per week, totalling €416 annually. This will benefit over 100,000 individuals, including those receiving retirement, invalidity, and widow pensions. Over ten years, this represents a total increase of at least €3,583, equating to nearly €70 per week.

• Adjustment for Pensioners Born Before 1962: Those born before 1962 whose earnings exceed the maximum pensionable income of €23,500 will receive an adjustment. Approximately 26,000 pensioners are expected to benefit from this measure.

• Tax Exemptions: From age 61 onwards, pensioners will enjoy improved tax exemptions, including the announced increases. Widows will continue to be exempt from paying taxes due to measures introduced this year.

Support for Widows and Other Beneficiaries

• Increases for Widows: An additional increase in pensions will be provided to widows through a process that will reach completion by 2027. Around 7,500 widows and widowers are expected to benefit, with an average increase of about €3 per week, in addition to the overall €8 increase.

• Standardisation of Cost-of-Living Bonuses: A process initiated in 2022 aims to standardise cost of living bonuses for pensioners, which had varied based on the year of retirement. By 2027, all pensioners will receive a uniform bonus based on a formula considering wage increases and inflation.

• Service Pension Adjustments: The amount of service pension exempt from social security calculations will increase by €200, reaching a total of €3,666. Approximately 3,250 pensioners will benefit from this adjustment.

Changes to Bonus Structures

For individuals without enough contributions to qualify for a pension:

• Bonus Increases: Bonus rates will now reflect the actual number of contributions made, ranging from €550 for up to one year of contributions to €1,000 for up to nine years. This change will benefit over 16,000 individuals, primarily married women.

Sustainability Measures for Pensions

To ensure the sustainability of pension systems:

• Increased Contribution Requirements: The number of years of contributions required to receive a full pension will increase from 41 to 42 years for those born in 1976 or later. This adjustment, advised by the Strategic Pension Group, is aimed at sustaining pension expenditure, which has increased by over €400 million in recent years.

• No Increase in Retirement Age: The retirement age and social security contribution rates will remain unchanged, supported by economic growth and job creation.

DISPELLING THE MISINFORMATION

Is it true that it will become more difficult to receive a full pension and that the retirement age has increased?

Not at all. For those born in 1976, the retirement age is set at 65. Until now, individuals needed 41 years of National Insurance contributions to qualify for a full pension at this age. This means that if a person starts working at the age of 24, they can still qualify for a full pension.

With the upcoming changes, the requirement will increase to 42 years of contributions. Therefore, to meet this new requirement, individuals will need to begin working at the age of 23. Most people do start their careers around this age.

However, the Labour Government has introduced various credits for contributions. For instance, if an individual completes a tertiary education Degree course lasting four years, they receive credit equivalent to two years’ worth of contributions. This means that a person who attends university from the ages of 19 to 22 will be eligible for two years of credits. If they then start working at 23, they could accumulate 42 years of contributions plus two years of credit, resulting in a total of 44 years of contributions by the time they reach 65.

Moreover, there are provisions for credits if someone takes time off work to care for children, or if they are unemployed or unable to work due to health reasons. Therefore, with these changes, there will be no negative impact on eligibility for a full pension.

Is This the First Time the Contribution Period Is Increasing?

No, the contribution period has increased every two years. For instance, in 2006, it was increased from 30 to 35 years for those born between 1952 and 1961 and from 30 years to 40 years for those born in 1962 or later. In 2016, it was further increased from 40 years to 41 years for those born in 1969 or later. The current increase from 41 years to 42 years applies to those born in 1976 or later.

Why Was the Need for This Increase Felt?

The social security law mandates the government to maintain a balance between the number of contribution years required for pensions and the expected lifespan of pensioners. Calculations by the Pension Strategy Group suggest that this balance should be set at 42 years for those born in 1976 or later. The aim is to ensure a higher pension in the future.

Impact on Individuals Born in 1976 or Later

The retirement age remains at 65 years for these individuals.

Here’s how the contribution timeline looks for those starting work at various ages:

At 18 years: Completes 42 years of contributions by age 60

At 19 years: Completes by age 61

At 20 years: Completes by age 62

At 21 years: Completes by age 63

At 22 years: Completes by age 64

At 23 years: Completes by age 65

Individuals who delay starting work due to education will receive free contributions:

MQF Level 5 (Diploma): 3 months per year of study

MQF Levels 6 and 7: 6 months per year

MQF Level 8 (Doctorate): 1 year per year

Similarly, for parents who stop working to raise children, there are provisions for automatic contributions:

For the first three children: 4 years automatically

From the fourth child upwards: 2 years for each child, given if the parent returns to work

If an individual still has missing contributions, they can pay for up to 5 years of missing stamps between the ages of 59 and 65.

Does This One-Year Increase Mean That the Retirement Age Has Increased?

No, the retirement age remains at 65 years. The last increase occurred in 2006.

Does This One-Year Increase Mean That the Rate of Social Security Contribution Has Increased?

No, the rate of social security contribution remains unchanged since its last adjustment in 2000.