Dr. Orlaigh Quinn:

I thank the joint committee for the invitation to discuss the issue of pensions reform, including the implications of the EU White Paper on pensions. In the past few years pension provision, in all its forms, in Ireland has experienced considerable challenges and changes. The sustainability of the wider system is a particular concern because of the demographic issues Ireland faces and the associated increases in pension and other age-related costs. These issues have been exacerbated owing to investment losses and the deterioration in the public finances since the recession. Currently, there are 5.3 people of working age for every pensioner and this ratio is expected to decrease to approximately 2.1:1 by 2060.

Life expectancy is also increasing. In the mid-1990s life expectancy for males was 73 years and 78.5 for females. For those aged 65 years today, life expectancy for males is 82 years and 85 for women. By 2030 these will have risen to 84.1 years and 87.4, respectively. This is very welcome news, but it brings with it a number of significant challenges in funding pensions into the future. Key drivers of reform have included the need to achieve sustainability of our systems in the longer term, while also striving for adequacy in these systems. This has included reforms to the State pension and public sector pensions and efforts to increase supplementary pension coverage, while working to ensure the continued viability of defined benefit pension schemes.

Ireland has undertaken considerable research on pension issues, commencing with the Green Paper in 2007. This included comprehensive consultation involving submissions from some 370 organisations and individuals, as well as a number of national and regional meetings involving some 500 people, and resulted in the national pensions framework in 2010. A number of reforms have since been implemented.

A number of reforms of the State pension have been implemented. Significant reforms have been introduced recently and more will be implemented in the years ahead. In order to provide for sustainable pensions and facilitate a longer working life, legislation was introduced to increase the State pension age. This was discussed at the previous meeting. In January 2014 the State pension age was standardised at 66 years, with the abolition of the State pension transition payment. Pension age will increase to 67 years in 2021 and 68 in 2028.

The changes to pension age also include consideration of measures to encourage longer working by older workers. With effect from April 2012, the number of paid contributions required to qualify for a State pension increased from 260 paid contributions to 520. From September 2012 new rate bands were introduced. These additional contribution requirements and payment rate band changes more accurately reflect the social insurance history of a person and ensure those who contribute more during a working life benefit more in retirement. It is also planned to introduce a total contributions approach. This will align the pension payment with the number of years a person has contributed to the social insurance fund. Arrangements will also apply to cover periods outside the workforce. This will more accurately award contributions made over a working life. It will remove the current anomaly whereby some people qualify for higher pension payments, even though they have fewer contributions but a higher average than others who do not qualify or qualify for a lower pension owing to the average contributions test. The proposed date of introduction for this reform is under review.

Several regulatory measures have been introduced in recent years to support the sustainability of defined benefit schemes. Legislation brought forward in 2009 removed the priority given to post-retirement increases for pensioners to ensure a more equitable distribution of assets in the event of the wind-up of a defined benefit scheme. The introduction of the sovereign annuity initiative in 2012 gave scheme trustees an option to reduce scheme liabilities and better match their assets with their liabilities. The introduction of the risk reserve in 2012 sought to improve the future sustainability of defined benefit schemes and incentivise schemes to improve their exposure to risk. In 2013 there was a widening of the types of asset that could be used to reduce the reserve requirements of the funding standard.

Also in 2013, regulatory powers were strengthened to provide the Pensions Board with the power to wind up a pension scheme. This power can only be exercised where a scheme is underfunded and the trustees and the employer are not in a position to adopt a funding proposal, or where the trustees of a scheme fail to comply with a direction from the Pensions Board to restructure scheme benefits. Legislation was also introduced in 2013 to provide for governance changes to the Pensions Board and amalgamate the Pensions Ombudsman and the Financial Services Ombudsman. These changes are aimed at strengthening regulation and ensuring greater consumer involvement. The Social Welfare and Pensions (No.2) Act 2013 which was signed into law in December 2013 provides for a fairer and more equitable distribution of scheme assets in the event of the wind-up of an underfunded scheme. It also facilitates a greater sharing of the risk between all of the beneficiaries when a scheme is underfunded, while still providing for priority protection of pension benefits. A non-legislative initiative has involved the development of a pensions tracing system for the private sector to support those nearing retirement to identify previous pension benefits and enable the pensions industry to contact former contributors to schemes.

In February 2012 the European Commission published a White Paper on how to create adequate, safe and sustainable pension systems in the European Union. The White Paper contains a range of initiatives intended to help to create conditions that will enable a balance between time spent working and time in retirement, ensure those who move to another country can keep their pension rights and help people to obtain adequate pensions when they retire. The White Paper describes the ageing of the European population which reflects the situation in Ireland as the main challenge for the future of the European Union's pensions system. Other challenges it identifies include financial sustainability, maintaining the adequacy of pension benefits and raising the labour market participation level of women and older workers.

In the light of these challenges, the White Paper makes a number of proposals for EU-level initiatives to support member states' efforts to reform their pension systems. These include creating better opportunities for older workers by calling on the social partners to adapt workplace and labour market practices and using the European Social Fund to assist older workers into work. Another proposal is to develop complementary private retirement schemes by encouraging social partners to develop such schemes and encouraging member states to optimise tax and other incentives. There is a proposal to enhance the safety of supplementary pension schemes, including through a revision of the directive on institutions for occupational retirement provision, IORP, and the provision of better information for consumers. The White Paper proposes to make supplementary pensions compatible with mobility through legislation protecting the pension rights of mobile workers and promoting the establishment of pension tracking services across the European Union. Member states are to be encouraged to promote longer working lives by linking retirement age with life expectancy, restricting access to early retirement and closing the pension gap between men and women. The White Paper also recommends continued monitoring of the adequacy, sustainability and safety of pensions.

The White Paper does not contain country-specific recommendations for Ireland owing to the memorandum of understanding which was in place at the time of its publication. However, the challenges identified in the White Paper are the same ones Ireland has been seeking to address in recent years, challenges which are relevant to most member states. Ireland plays a full role in EU developments and is a strong contributor in the various Councils dealing with pensions. During the recent Irish Presidency we were successful in obtaining agreement on a portability directive. This proposal aims to remove obstacles which hinder citizens' capacity to choose, with confidence, to live and work anywhere in the European Union without fear of losing their pension entitlements. It allows EU workers who move to a different EU country to safeguard their supplementary pension rights.

In April 2013 the OECD published its review of Ireland's pension system, encompassing the totality of pension provision in Ireland - State, private, occupational and public sector. The issues of sustainability, adequacy, modernity and equity were central to this review. The good news is that Ireland was found to be in a relatively favourable position compared with most OECD countries, both in regard to pension spending and the adequacy of retirement income provision. Most importantly, the economic position of pensioners in Ireland is comparatively good, relative to other age groups in the population and international comparisons.

In terms of the adequacy of pensions, it should be noted that older people do not experience the levels of poverty experienced in the past. For instance, the at-risk of poverty rate for persons aged 65 years and over fell from 27.1% in 2004 to 9.7% in 2011, compared with 16% for the population as a whole. Over the same period, the consistent poverty rate for older persons also declined from 3.9% to 1.9%, compared with 6.9% for the population as a whole. The OECD review shows that recent decisions in this area are in line with the roadmap needed for pension reform. However, the report also raises question marks about aspects of the Irish pensions system. The key recommendation made in the report is to improve the adequacy of pensions by increasing coverage in the funded part of the pensions system through a universal mandatory or quasi-mandatory employment-based pensions system. This is in accordance with the recommendations made in the EU White Paper and a key issue to be addressed in the context of future pension reforms.

While the State pension has been successful in lifting older people out of poverty, the financial challenges of our changing demographics and ageing population mean we need to improve occupational and private pension coverage.