Mr. Tim Duggan:

In my opening statement I said pension contributions were a large and complex issue. I did not think the committee was going to try to prove it to me. I will not promise to take the questions precisely in the order in which they were raised by committee members. On occasion I will bring in colleagues in dealing with them.

I will begin with the increase in State pension age. It is often said we are ahead of other countries but actually we are not. We are pretty much in the middle of the pack, of EU countries in particular. Of the other 27 EU countries, between 2009 and 2013, 12 increased pension age for men, while 16 have increased it for women. While pension age was largely lower than here in many of those countries during that period, by the end of this decade, 2020, many of them will have caught up with us and will have a higher pension age. It is not just those countries that are enduring particularly acute economic pressures, for example, Greece, that are doing it. In other much more stable developed economies pension age is the same as here or greater, for instance, in the Netherlands. It is essentially a factor of the sustainability of the state pension system.

During the break, while there was a division in the Dáil, Senator Kevin Humphreys asked us about future cost projections. It is difficult to be clear a long way into the future. At present we are spending an additional €1 billion every five years on the State pension system. That will become utterly unsustainable unless changes are made to the system, or the Government and the Houses decide to dedicate a significantly greater amount of funds from the Exchequer and the Social Insurance Fund to pension payments. It will be one or the other, or perhaps a combination of the two. The thinking all along has been that we have to put in place measures to enhance the sustainability of the system into the future in order that those of working age who are contributing to the Social Insurance Fund will not be left high and dry when it comes to their time to receive pensions. This is a feature of modern developed economies around the world, particularly in Europe where one of the measures is an increase in the qualifying age for the state pension.

On those being forced to retire at 65 years, there seems to be a misconception or misunderstanding. There is no such thing as a statutory retirement age in Ireland and there never has been. People are not being required to retire at 65 years because there is some law or rule of the State in place. It is a contractual matter between an employer and an employee. EU directives require retirement impositions to be justifiable. Employers are required, when setting a pension age, to have justifiable grounds. While some will say they are long-standing contracts into which people entered voluntarily and so on, there is nothing to stop employers from renegotiating them. It is very easy to change a contract when there is mutual agreement and there is nothing to stop employers from putting in place a second contract, beginning at age 65 years and moving on if they wish to tackle the problem in that way. The 65 year age issue is not State generated. It is a function of contracts employers have with employees.

The Department of Public Expenditure and Reform spearheaded a group that examined the issue of developing mechanisms or measures to encourage people to work for longer. Part of it is encouraging employers to allow people work for longer and not to try to enforce the 65 year retirement contracts they may have. As a consequence, the Workplace Relations Commission is developing guidelines for employers to encourage them to behave in that fashion.

The gross cost of the State transition pension was approximately €140 million. The net saving as a result of its abolition is estimated at approximately €80 million in a full year. In abolishing it State pension age was essentially unified at 66 years. People were required to retire before receiving the State transition pension. It was to move from retirement to receipt of the contributory pension. In thinking about policy objectives it is highly unlikely that somebody who was forced to retire at 65 years to reeive the State transition pension and who at 66 received the normal State contributory pension would go back to work. Therefore, if the policy objective is to increase people's working lives or to enable them to have “fuller” working lives, it seems that the State transition pension ran counter to it. It is not just that it was a mechanism to save money in difficult austere times, it was also to aid the policy objective.

The issues of pension increases and indexation were raised. The Department has never made a formal proposal that pension payments be index linked.

However, the Senator is absolutely right that it is often looked at and has been under consideration for some considerable time. The issue is when, how and by how much pensions should be increased would impact on a lot of other budgetary measures and it could not, therefore, be considered in isolation. That said, it is the case that Ireland is somewhat unusual in an EU context, in particular, in that setting the rate each year without reference to a particular formula is not done. The norm in other countries is that there is a form of indexation. Various measures are used in indexing in most other countries. Lithuania may be the only other member state that operates somewhat like us. Of the others, 20 member states include prices in the formula; 17 include wages; three include GDP, while there are combinations of these, depending on the approach taken by each country. If we were to consider inflation, there would be two possibilities. We would either use the CPI or a measure called the HICP, but in deciding we would have to look at the basket of goods used in determining the rate. Some of the things in the normal basket are not particularly pertinent to people of retirement age; in that sense, therefore, it might not be a good quality indexer. For example, education costs are ordinarily included in the basket. One has to wonder if they should be included in indexing pension payments.