The Government has been urged to set aside the budget surplus to spend on future pension costs. 

Surging levels of corporation tax receipts mean the State is expected to record a budget surplus of €10 billion this year and a further €14 to €16 billion in 2024.

The Irish Fiscal Advisory Council has described current spending on pensioners as the “tip of the iceberg” and said costs will surge in the decades ahead.

“We have much bigger problems coming further down the road,” chair Michael McMahon told Newstalk Breakfast. 

“It may seem like a long way off but [in] 2035, 2040, this could have a really, really huge impact on the State finances.

“Our message is, if you take action now, you can do a little over a long time and it adds up to a lot.”

An elderly pensioner holding a leather wallet.

During the last Dáil, Fine Gael announced the State pension age would rise to 68 but the policy was dropped from the 2020 Programme for Government.

Mr McMahon said if people do not retire later, then more money will have to be spent on pensions to fund an aging populationfwe would.

“There was a commission to look at this and if some of it is not being done by raising the pension age, the natural thing that’s going to have to go up is contributions,” he said.

“If you’re going to do that, it’s actually a better - probably more equitable thing - if you start to raise them now.

“So that we build up the savings pot in order to have more money when it really starts to matter in the future.”

Mr McMahon said the State is “very lucky” to have a budget surplus and increased pension costs are exactly the type of long-term spending commitment it could be set aside for.

“We would like to see it set aside for the pension costs,” he said.

“The advantage being, you start saving now, you build up a big enough pot, don’t touch it for a while, it grows and grows and then by the time these problems get really big, you’ve eaten into quite a lot of the future costs that we’re going to [find].”

The Government has said it will use the surplus to create a State Wealth Fund in order to protect the public finances during a future recession.

Main image: An older man's hands holding a Euro banknote. Picture by: Andrea Obzerova / Alamy Stock Photo