Oireachtas Joint and Select Committees

Wednesday, 2 October 2013

Joint Oireachtas Committee on Public Service Oversight and Petitions

Revised Eligibility Criteria for State Pension (Contributory): Discussion with Minister for Social Protection

4:25 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour) | Oireachtas source

It is critical with pensions, as we said, to have commitment to 34% of average earnings. I shall answer the Senator's question as follows. Let us look into the distance because the following measure would have to be Government policy for a long period. If there is a general social commitment to the retirement pension being at 34% of average earnings, and similar for the non-contributory pension, and earnings increase then so does the State's contributory and non-contributory pensions. It is an automatic equaliser or follower provided that one keeps to the principle of 34%. If one lowers that principle then, relatively speaking, the value of one's pension could fall. I can only speak for the period that I am Government but even though this is an extremely challenging period in the economic history of the country, our commitment is to maintain the ratio as expressed in the core weekly payments, and that is evidenced as wages rise in the future economy. There is no great pressure on wage increases at present. When the economy starts to expand and grow there will be pressure.

With regard to the pension following in line with the percentage to which I have referred, that is key to keeping the excellent outcome that we have regarding pensioners avoiding poverty and poverty traps. In general, provided that the policy is continued, pensioners will be strongly protected and, as a consequence, will avoid poverty. That is why I am saying that it is a feature of an unwritten agreement with pretty much everybody in this House to maintain the success that the country built, admittedly, at the time of the Celtic tiger boom. It is very important to hold as much of those gains as possible. The Senator will be aware of the following. Let us compare the pension that somebody in Donegal receives with what somebody who lives across the Border receives. It shows that we are, as a society, in a better position, notwithstanding arguments about public services. This society should seek to maintain that position.

The second point refer to how the net value is related to the percentage. I hope my words make sense to the Senator. There should not be a poverty trap over somebody's lifetime. Let us remember that the State has moved to a position where anybody in employment, even public servants, are covered by PRSI and anybody self-employed has very generous contribution conditions regarding the contributory old age pension. I do not see the poverty trap issue arising provided that there is a continuity of commitment to pensioners and retired people. That is important. Let us also remember that Ireland provides very generous recognition of credits for people, for instance, for those involved in caring and other work within the home. We also have automatic credits, as I said, for people who have periods of unemployment. They are automatically granted a credit during such periods. That measure helps to maintain the continuity of somebody's contribution record over a long period.

Tax reliefs are a matter for the Minister for Finance. However, I recall the commitment given in the programme for Government that if one puts savings or earnings into a pension pot that will yield an income in retirement of €60,000 per year then the State would taper off, or not continue, to give a tax write-down. For most people a pension of €60,000 per year is a significant pension. The provision does not prevent a person from saving and putting more into a pension pot. It is after that figure that tax relief would be mitigated.

The Minister for Finance gave a commitment in last year's budget to legislate for such a provision for 2014. The legislation is technical but I know from reading parliamentary questions that work is ongoing in that regard. Next year the pension levy of 0.6% falls out. Let us recall that anybody with a pension fund pays a 0.6% levy at present. I know that the Senator's party favours a much higher level of wealth tax. Let me say, as an accountant, that a 1% levy on capital is a very highly effective rate. That is why countries that have a wealth tax charge a very low rate and a rate of 0.6% would be a significant amount. The pension levy of 0.6% falls out next year.

I shall comment on the OECD and a universal supplementary pension. I have said before, and I shall say it again, this country has a contributory and non-contributory retirement pension, which is a good pension. At present a person is not going to get much more than €240 per week plus ancillary benefits and other benefits that one may be entitled to, such as a medical card, if one's sole income is the pension. Many people who earn more should have a supplementary pension. Most countries, such as Australia and the United Kingdom recently, have either a mandatory supplementary pension when a person is working or auto-enrolment, the second option put forward by the OECD. Personally I favour the latter and I have extensively discussed the matter with the Minister for Finance. We had very positive discussions. The individual and the State would have to contribute and, if the individual were in employment, the employer would have to contribute. However, the economy would have to return to a better place.

It would be difficult to ask people in their 30s, who are at the pin of their collars in paying their mortgage, to start accumulating an additional pension. Most countries which have done this have phased it in over a number of years. I strongly support the OECD's recommendation. The auto-enrolment model is possibly the best for Ireland. I am looking closely at the success or otherwise of it in the United Kingdom.

On the ESB workers crisis pension fund, I will first pass on the good news. As I understand it - I will talk in general on the issue - the ESB workers have been working for a number of years to sort out the issue of, as is the case with many defined benefit schemes, deficits on their pension funds. They have done a huge amount of work. They have put their scheme to the pension regulator, which is independent of the Department. Due to the extensive negotiations in the ESB over the course of a number of year and the quality of the management of the pension by the trustees and the workers representatives, their position is relatively-----

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