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Pensions and unemployment benefits are linked to wages to protect against inflation

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Pensions and benefits are supposed to be measured against the average industry wage, which should mean that they rise with inflation.

Department of Social Protection officials are preparing plans to benchmark the pension system.

Officials will then examine whether it is possible to link welfare rates to the average industry wage Irish Independent have learned.

Junior Social Protection Minister Joe O’Brien said: “There has long been a good case for benchmarking, but I think the current cost of living situation has highlighted its potential as a protective tool for those who depend on welfare.”

He said the government was committed to examining benchmarking of both pensions and social benefits.

That Irish Independent previously reported details of the pension overhaul, which will see five different pension rates while the official state retirement age remains at 66.

However, those who retire later receive higher pensions.

The pensions overhaul is expected to include the new benchmarking system.

Greens TD Mr O’Brien said the government was also considering benchmarking social payments.

“The Social Inclusion Roadmap contains an important commitment in terms of benchmarking,” he said.

“Right now we are looking at the whole pension system and once we have that completed there is a commitment to review and produce a report for the government on the potential application of the benchmarking approach to other social benefits.”

Officials will then examine whether it is possible to peg welfare rates to the median industry wage, which according to 2020 CSO figures is €49,000 a year.

Mr O’Brien said there was “a good case” for benchmarking unemployment benefit payments due to the cost of living crisis.

Wages aren’t guaranteed to rise when inflation hits, but they tend to rise over time as the cost of living increases.

Benchmarking both pensions and benefits against wages would help protect older people and those on benefits from the effects of rising inflation.

“It gets more complex outside of pensions, but the commitment is still there,” Mr O’Brien said at a pre-budget forum in recent days.

“There has long been a good case for benchmarking, but I think the current cost of living situation has highlighted its potential as a protective tool for those who rely on welfare.”

Officials use a 2001 report on benchmarking and indexing as a reference.

The social benchmarking and indexing group said in the report that while welfare rates would need to reference average earnings for previous years each year, that would mean they are a year behind at any given time due to the budgetary process.

According to the report, a measure of social benefits should represent an income standard similar to government support.

But the report says there is a “fundamental need” to establish a “formal link” between welfare rates and median income to ensure welfare incomes keep pace with the rest of the broader population.

A spokesman for the Department of Social Protection said the purchasing power of recipients should be protected in relation to the value of welfare payments.

Officials have developed an approach called “smoothed income” that protects the value of welfare benefits.

“The approach developed, known as the ‘smoothed earnings’ approach, aims to ensure that the relative value of social benefits compared to market income is preserved over time and that, in the short term, the real value, or purchasing power, of these payments is preserved would be protected,” the spokesman said.

“The Pension Commission report also examined the issue of comparing pension rates and advocated the implementation of the ‘smoothed income’ approach.”

Officials have not yet decided what percentage of the average industry wage to peg to pensions or welfare rates.

Efforts to compare pension and welfare rates are expected to be welcomed by activists who have long called for rates to be linked to average wages.

The co-director of the Nevin Economic Research Institute, Tom McDonnell, recently called for benchmarking of welfare rates after figures from a parliamentary advisory body said pensioners were falling by €12 a week.

https://www.independent.ie/irish-news/pensions-and-dole-will-be-linked-to-wages-to-insulate-against-inflation-41883296.html Pensions and unemployment benefits are linked to wages to protect against inflation

Fry Electronics Team

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