Higher taxes or spending cuts loom if the Government delays increasing the State pension age to 67.

The Government may also have to increase borrowing to cover the additional annual cost of up to €575m, according to estimates by the State budget watchdog.

As revealed by the Irish Independent, the Pensions Commission is understood to have told Social Protection Minister Heather Humphreys to hold off on raising the pension age as planned this year.

It would leave the Government with a yearly funding gap that could only be bridged by finding the money elsewhere, whether via new revenue or by reducing benefits.

“Ireland has a mixed history in addressing pension reform, with the pension age not having followed rising life expectancy and numerous official reports that have not led to change,” the Irish Fiscal Advisory Council wrote in its Long-Term Sustainability Report last year.

“Failure to implement the legislated increases in the pension age planned for 2021 and 2028 would raise spending and contribute to a rising debt burden over time.”

The Fiscal Council estimates that the additional cost of leaving the pension age at 66 for the next seven years will be €575m this year, and rise to €1.5bn by 2028.

That is the year the Pensions Commission is suggesting the State pension age should begin to rise in quarterly increments to 67, before gradually increasing to 68 by 2039.

Working families could face a higher burden of taxes to help cover the pension costs of those who have retired.

There are more than 500,000 pension recipients in Ireland, but the ageing population means that number will rise every year.

A spending review by the Department of Public Expenditure and Reform two years ago forecast that the scheduled increase in the pension age this year would save the Government €218m.

But if it fails to go ahead, those savings would be lost and approximately €260m of normal annual pension cost increases would be added, for a total gap of more than €475m.

The reversal of the 2011 legislation authorising the increase would leave the State’s pay-as-you-go pension system dependent on a dwindling number of workers to support retired people.

While the system relies on having four people employed for every person drawing a pension, that ratio is projected to fall to 2.3 workers per pensioner by 2050.

According to the Government’s 2019 Roadmap for Pensions Reforms, options to close the funding gap include delaying the pension age, reducing the amount of the State pension, tightening qualification rules to exclude more people or link benefits directly to the number of contributions.

Some commentators have welcomed the prospect of the Government delaying the pension age increase, however.

The head of the Irish Association of Pension Funds (IAPF), Jerry Moriarty, said that making some people wait an extra year for their State pension because of their date of birth was unfair.

“We will be interested in whether there will be flexibility for those who don’t want to or can’t keep working until 67 or 68,” he said.

Ciaran Nugent, an economist with the Nevin Economic Research Institute, said framing the debate in terms of budgetary spending increases was misguided.

“Instead of focusing on the spending side, we should focus on the tax side,” he said, adding that he favoured increasing employers’ PRSI and instituting a wealth tax.

“We should be looking for ways to increase revenue to provide basic supports. In an Irish context, there are plenty of other ways.”

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