The State pension age will remain at 66 and people will be offered the choice to work until 70 in return for higher payments, Minister for Social Protection Heather Humphreys has confirmed.
Long-term carers will also be provided with a pension for the first time.
The Government has also committed to explore a new scheme to "support people who cannot continue working in their early 60s".
Ms Humphreys said PRSI increases "will be needed in the future" to pay for her pension plan.
Details of this will go to Cabinet next spring. Ms Humphreys said increases will be "modest" and introduced more gradually than originally anticipated" due to the country's healthier financial position.
Asked about a report from Irish Fiscal Advisory Council, which predicted that someone earning €50,000 would have to pay an additional €1,200 in PRSI, the minister said any increases will be "modest" and introduced gradually.
She told a news conference that the public "gave its verdict" on keeping the pension age at 66 and that must be respected.
The new pension measures, which were approved by Cabinet this morning, are in response to the recommendations from the Commission on Pensions.
The set of reforms agreed include:
- Maintaining the State Pension Age at 66 and introducing a new flexible pension age model
- From January 2024, people will have the option to continue working up until the age of 70 in return for a higher pension
- As recommended by the Pensions Commission, move fully to a 'Total Contributions Approach' for calculation of individual pensions entitlements on a phased basis over 10 years starting in January 2024
- Enhanced State pension provision for long-term carers to be introduced from January 2024. This will mean, for the first time, people who have to give up work over a long duration to look after a loved-one will have their time spent caring recognised in the pension system.
Minister Humphreys said that the "landmark reforms" represent the "biggest ever structural reform to our State pension system".
It includes a commitment to explore a scheme to provide a benefit payment for people who, following a long working life of 40 or more years, are "not in a position to remain working in their early 60s".
The pension reform announcements come as new research shows that significant gaps remain in Irish pension planning, with 38% of people surveyed having no pension in place.
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Speaking after the Cabinet meeting, she said: "We know that people are living longer and healthier lives which is hugely positive.
"At the same time, everybody's job and circumstances are different so we need to move away from a 'one size fits all’ approach to the pension age.
"That is why from 2024, Ireland will move to a new 'flexible pension age' model, similar to the systems in place in a number of other EU countries.
"Under this new model people will continue to be able to retire and draw their pension at 66 exactly as they can today.
"In addition, for the first time, people will now be given the choice to continue working beyond 66 in order to receive a higher pension payment."
The minister added: "Over the next ten years, as recommended by the Commission on Pensions, we will move to a Total Contributions Approach, ensuring that people's pension rates are based on the number of years they have worked and paid contributions.
"This will be a crucial step in ensuring our State pension system is sustainable into the future and will help deliver a more fair and equitable system for our citizens.
"As part of the move to the Total Contributions Approach, we will provide a pension to long-term carers from 2024.
"Given the sacrifice that carers make and the contribution they make to society, I believe it is only appropriate that we should enable them to access the State pension."
She continued: "I am pleased that Government also supported my proposal to explore the introduction of supports for people who - for various reasons - cannot continue working into their early 60s.
"These proposals will be worked on over the coming months and will be modelled on the Benefit Payment for 65-year-olds that I introduced following my appointment as Minister for Social Protection."
Looking to the future, Ms Humphreys said action is needed to sustain the welfare system.
"That is why Government have today agreed to review social insurance rates in a structured manner. This will be done every five years with the level and rate of increase based on the outcome of a statutory actuarial review."
She said the social insurance fund is "in a much healthier position than we initially thought".
Speaking to RTÉ's News at One, Ms Humphreys said that a deficit of €1 billion in the fund had been projected by the end of 2022, but this has "changed considerably".
"Now we're looking at a report that I will be getting at the end of this year that will probably have the social insurance fund close to €3 billion in surplus.
She said that despite this, there is still a need for PRSI contributions to increase, but it can be done on an incremental basis.
"While I absolutely want to make it clear people will have to pay increased PRSI contributions for the fact that we're leaving the pension age of 66, we'll be able to do it on an incremental basis.
"It will be more phased than we initially thought and I will be getting a report on the social insurance fund at the end of this year."
She said that people who are self-employed will qualify for the higher pension beyond 66 up to 70.
She described the new pension measures as a "good solution".
"I think it's a fair and modern solution to a difficult and contentious issue and it does reflect the fact that people are living longer. They want greater choice in terms of their retirement and it's something that we have considered now and I think that this is a good solution."
Under the proposed flexible model, those working beyond 66 would receive higher rates of pension payment.
The weekly State pension would increase from €253 for 66-year-olds to €266 for 67-year-olds; €281 for 68-year-olds; €297 for 69-year-olds; and €315 for 70-year-olds - a combined 24% increase.
The Taoiseach said this morning there was need to ensure financial sustainability around pensions but it was important to give certainty to people close to retirement.
Speaking before the Cabinet meeting concluded, she said she was "alarmed" by the pension proposals.
Ms McDonald reiterated her party's position that the age of retirement should be 65, adding that in a "prosperous" society that was appropriate age to retire.
She was speaking at an event organised by the 'Cost of Living Coalition', which is promoting a demonstration scheduled to take place in Dublin on Saturday.
Additional reporting: Paul Cunningham and Tommy Meskill