Alice-Mary Higgins (Independent) | Oireachtas source

Some of the matters I had wished to raise have been touched on already. I wish to touch on a few other points. I will begin by picking up on some of the points Senator Humphreys raised. I will begin with the universal supplementary retirement saving scheme and then move on to the first-tier pension. The current marginal rate tax relief system will be important.

While it is a matter for the Revenue Commissioners, clearly it is a central focus when considering pension planning. There can be a little fudging, not from the witnesses, around the idea that it gets taxed on the way out. Of course, an income that is taxed on the way out to a pension income, which is only part of an income, will often be taxed at a lesser rate or less of it will be taxed at a higher rate, so there is a very tangible saving. It is not the same as if that amount had been taxed as income. There is a reduction in the revenue gathered by the State in that regard. It is important we do not equate that or blur that line.

Regarding higher earners, they are earning higher incomes and paying higher taxation because we have a progressive taxation system. It is a point of pride for the country. It is one of the fundamental defences we have had when the OECD and others have pointed out that Ireland has one of the highest rates of income inequality. One of the highest rates of income inequality means that we have this progressive taxation system which has a redistributive role. There is something of an anomaly in the marginal rate tax relief. It was highlighted by the troika and it was one of the matters in the memorandum of understanding that were to be acted upon. A cap was put in place but that did not deal with the fundamental inequity issue that exists. For a long time it has been at odds with the stated aim of our pension policy, which is to provide the greatest protection possible to lower and middle income earners. With regard to the information Senator Humphreys requested, it would be useful if the witnesses were able to access that information and work with the Revenue Commissioners on it. It would be very useful for us. If we have a universal supplementary retirement savings scheme it would be a considerable investment and a new step for the State, and it is hard to see how that would be compatible with the considerable investment there is at present in the marginal rate tax relief.

That leads to another point we might discuss in terms of the type of models, and I am aware that the Department is still examining this. I recall engaging with the process regarding the universal supplementary retirement savings scheme. Mr. Nicholson briefly touched on the models that might be used. For example, it might involve tax rebate or schemes that might be closer to the special saving incentive account, SSIA, model, where one is considering a pension promotion tool or a State subsidised mandated scheme. It is a second tier mandatory earnings related social insurance scheme of some kind versus a tax subsidised private pension scheme. The model is important because of the issue of control.

Another issue that concerns me is that even some of the advocates of these schemes have acknowledged that they tend to disadvantage women. Although voluntary pension schemes might not have such a measure, it would be important that a system that would be State subsidised to a great extent would find a way to have a compensatory mechanism to address concerns regarding the redistributive role and the recognition of care. We will return to that question further, but how do we include the recognition of care, for example, within the pension system? It is not really dealt with here but we have not seen what the proposals might be if a new second tier was introduced in terms of how the State can ensure there is subsidisation protection for particular vulnerable categories and, indeed, potential recognition for other forms of contribution. There is, effectively, a subsidisation in the improvements we have seen for the self-employed, because the contribution self-employed people are making through PRSI at present is not at the same level as that of people in PAYE where there is an employer and personal contribution. The level is something to be examined as well.

That leads to the question of voluntary pension contributions. I welcome that the Department has taken on board one of my proposals relating to voluntary pension contributions. I am probably going back to the first tier, so I apologise for that. I have too many things to say. I will put that aside, because it relates to the first tier, and finish my points on the second tier and on private pensions. There are huge issues of trust and risk with private pensions. If we are considering a universal supplementary model, how do we ensure it is not simply an individualised risk and that we are not simply subsidising people to take a chance in the system, but that we are giving them some sense of a guarantee of an increased income? That is what people are generally seeking. If people want to gamble they can go to the stock market, but most people want the security of knowing they will have an income on which they can plan. What are the witnesses' thoughts on how we can build that into a system in which there are private and public actors? In that regard as well, there is the issue of the governance and the chain of accountability in the universal supplementary retirement savings scheme. How can we enforce that governance and ensure there is a chain of accountability, so that it is not simply an input from the State but that there is an accountability level for the State in it?

On defined benefit schemes, and Deputy Brady mentioned the UK pension fund, the witnesses will be aware that I also proposed, unfortunately unsuccessfully, that we consider some of the other measures the UK has implemented to ensure that trust is maintained and delivered with regard to pensions. The cost of it has been mentioned, but the cost is the cost. Many things have a cost. However, there is the question of a solvent company that decides that a cost which it has committed to is not a priority for it. Potentially, there is a power imbalance there and there is a question of whether it is committed to the cost. We are aware of the Independent New & Media case and I will not go into the detail of it, but in that case many employees were required to pay into the pension system. People have shown me the letters where they were required to do that. It has been a condition of their employment that they pay into a defined benefit scheme. Now we are looking at a situation in which that trust is effectively being diluted. There will be a board meeting on that today.

The witness mentioned the work of trustees and the importance of engagement with them. We must think about how the State can have a fall back when the Pensions Authority is not listened to, an agreement made by the authority is flouted or when trustees are bypassed. I am aware that actions are being taken, but we might have to look to a more systematic approach in that regard. It never should be open to one party in an agreement to renegotiate unilaterally. In the Independent News & Media case, the 2013 agreement was reached with the support of the Pensions Authority. It was to be continued, planned and scheduled. It was very manageable from a company's perspective with scheduled investment over a ten year period into a defined benefit scheme. What we are seeing now is a company that appears to be deciding that it will now invest, if it invests at all, in a defined contribution scheme. I accept that many defined benefit schemes are winding up and I would not have raised it but it was in the witness's presentation. We must ensure that it is not a unilateral decision to move from defined benefit to defined contribution. It must always be negotiated and agreed.

I will finish with the second tier and third tier, but a core question is the gender pension gap. There is a gender pension gap. In addition, there is an equality and gender proofing obligation. With regard to the gender pension gap, I am interested in how care will be addressed in the supplementary scheme. However, I believe the core problem is the question of trust. Again, it is trust and risk and how we rebuild trust. I would like people to engage in a new pension system, but trust must be repaired. I have the same figures as Deputy Brady but I will not list them again because he has done so. The marriage bar, which was ended by Europe, has an ongoing impact on many women in Ireland through their reduced pension every week.

There are some opinions - I do not know if the Department has had this discussion internally - that the European equal treatment directives have not been adequately fulfilled by simply ending the marriage bar because the legacy impact of the marriage bar has continued and has not been adequately addressed. For example, the homemaker's disregard system only goes back to 1994. It does not extend back to 1973 so even that system cannot be said to be an adequate response to address the impact of the marriage bar. That is a concern that has been expressed to me at European level previously.

It is almost a case of adding insult to injury in that women who have been deeply, unequally treated by the pension system were effectively targeted. It was a decision. It is interesting that even in the presentation from the Department – I do not make the point personally – when savings were required and there was a desire to keep the top rate of the contributory pension untouched, the lower rates were effectively eroded. We had a concrete loss in income for those on the lower rates who are predominantly women. We saw a group that had been systematically disadvantaged, who had been inadequately recompensed, again disadvantaged. I am particularly concerned now that when we see the steps of repair that are happening, we are talking about the €5, but all those on reduced rate pensions will not get €5. They will get €3 or €2, a pro rata amount less than €5. Even though they suffered unequally in terms of the impact of the contribution thresholds being changed and the bottom rate just being cut, it has not been a priority to repair that or address it.

I notice the costing in terms of 2012 is put at €50 million and potentially €10 million every year thereafter, yet we also hear about the total contributions approach. I put it to the Department for potential consideration. I would welcome the thoughts of the witnesses in this regard. Currently, under the averaging system we have anomalies where women who have paid a full 520 contributions are not getting a full pension because of the way the system is averaged due to the years in which they paid their contributions. People who have paid in as much as someone else are getting less back for it. When we raised it, we were told it would be really expensive to fix that and that we should wait for the total contribution approach. At the moment the system is failing to address the point. Since 2004, there have been policy promises to address that anomaly. The Department must ensure that it is not making the situation worse. It may be that it would cost €50 million next year and €10 million for the following two years, but I do not think women should be asked to bear the cost, given that they have borne the cost of austerity and previously have borne the cost of inequality, while the system is sorting itself out. I suggest that it is unacceptable that we would have that gap maintained. That is just a thought in that regard as it is a key anomaly.

I am interested in voluntary contributions, which I strongly welcome. Part of my proposal was to increase the period to five years. Rather than having one year from one's last contribution, one would have five years in which one could make a voluntary contribution. That is good and it will help a lot of people who suddenly realise their pension shortfall. The second half of my proposal is that those who have already made 260 contributions would be able to make voluntary contributions because there is still the requirement of having already made 520 contributions. Now the repair work will only address people where there is a gap and they are suffering from averaging. It will not help those who realise they fall just short of a tier or that they could potentially move, if not to the highest tier, to between the third and the second tiers. I urge the Department to consider that because it would be a way to allow people to pay in and to contribute in order to improve their own security at a later stage. I would like the witnesses to address how that might happen. I am probably coming to the end of my time.