Increase to poverty rates from pension reforms – ESRI

Government plans to increase Pay Related Social Insurance (PRSI) to fund the State pension will lead to a slight increase in poverty rates, particularly the child poverty rate, as those in the most affected age cohort are also those most likely to have dependent children.

New research from the Economic and Social Research Institute (ESRI) found that the reforms, which increase all rates of PRSI by 0.7 percentage points by 2028, are progressive, affecting high income households more than low-income households.

The changes will result in Government revenue gains of €1.6 billion per annum by 2028, according to the ESRI.

The report found that on average, households will see their annual disposable income fall by 0.6% by 2028 as a result of the reforms

Assessing the effects by gender, the research found that the proposed reforms affect men slightly more than women, due to their higher labour market participation.

“Some of the larger PRSI reforms recommended by the Commission on Taxation and Welfare and the Pensions Commission, such as abolishing or minimising exemptions based on age or income source and equalising the treatment of employee and self-employed income, are not included in the roadmap,” said Dr Karina Doorley, an author of the report and Senior Research Officer at the ESRI.

“Policy makers may wish to consider these proposals to avoid unduly increasing the burden on those most affected by the current roadmap,” Dr Doorley said.

A separate ESRI research paper looks at the winners and losers in the reform of the state contributory pension.

Recent changes have been made to the way a person’s entitlements are calculated to take account of time out of the labour market spent caring for others.

The ESRI found that for 83% of men and 56% of women, there will be no change in their state pension entitlement.

The main difference is a large increase in the proportion of women qualifying for the maximum pension rate, from 54% to 75%.

The reports on PRSI and the state contributory pension reform are being published ahead of the ESRI’s Budget Perspectives conference tomorrow.