Mr. Justin Moran:

On behalf of Age Action, I thank the Chairman and committee members for the opportunity to come here today. I will focus my remarks this morning on the State pension and highlight issues which we hope will be addressed in budget 2017 and then discuss what must be done in the medium to long term to ensure a sustainable and fair State pension.

Ensuring that every person who hopes to grow old has enough money to do so with dignity cannot be left to when the individual reaches retirement. Less than half of people aged between 20 and 65 have a private pension. For those aged over 65, public transfers, of which the State pension is the most important, make up almost two thirds of their average gross income. This figure is higher for women pensioners, those living in rural communities and particularly those in the lowest socio-economic group. This is what makes the State pension so critical - for those on the lowest incomes, more than 85 % of their weekly income is from State supports. The State pension is the most important tool we have for preventing poverty among older people.

As members will know, during the recession the rate of the State pension was not changed. This prompted some commentators to claim that older people were insulated from the effects of austerity. While the State pension was not cut for the vast majority of pensioners, a point to which I will return, the secondary income supports of many older people, such as fuel and telephone allowances, were cut or abolished. Age Action has calculated that between January 2009 and January 2015 the weekly incomes of older people dependent on the State pension and secondary income supports such as the household benefits package and the fuel allowance fell by more than €13 per week. While the incomes of older people were being cut, costs were rising due to increased insurance rates and the introduction of new taxes and levies on the family home and on prescriptions. Research undertaken by the Vincentian Partnership for Social Justice in 2013 noted that while the overall consumer price index fell by 0.15 % in the period 2008 to 2013, the cost of a minimum essential standard of living for a lone pensioner and a pensioner couple rose by over 5 % and 7.3 % respectively. The cumulative effect of the 2016 and 2017 budgets, which saw increases in the weekly rate of the State pension, the restoration of 75 % of the Christmas bonus and an increase in the fuel allowance, amounts to the equivalent of €11.51 a week. We welcome those measures, all of which will make a difference to older people. However, even with the latest pension increase, the reality is that the income of a pensioner reliant on the State pension and the household benefits package is still below where it was in 2008. We hope that will be addressed in budget 2018.

Another issue we seek to have addressed this year is the change introduced in 2012 to the eligibility criteria for the contributory State pension. While those entitled to a full pension were unaffected, many of those who would have been in line for smaller pensions lost out. Under the old system, for example, if one had an average of 20 contributions, one would be entitled to €228.70 per week. This has now dropped to €198.60, a cut of more of more than €30 per week.

Research commissioned by Age Action, which the Chairman mentioned and has been furnished to the committee, shows that this change, combined with the averaging rule used to calculate contributions, is punishing women who took time out of work to care for their children or other loved ones. Figures provided by the Department of Social Protection as part of this research indicated that, of the 36,000 people affected by these changes by June 2016, more than 62% were women. They will continue to be affected in the years to come, receiving smaller pro rataincreases in the State pension.

In the October budget, Age Action is asking the committee to support two specific proposals: an increase in the top rate of the State contributory pension; and a reversal of the 2012 cut in the State pension. In the medium-to-long term, there is a consensus that the State pension system must be reformed, including by putting in place a system to govern increases in the pension to ensure that they are fair, but also sustainable. Ireland is, as the Department of Social Protection acknowledged to the committee in December, unusual in setting the pension rate in the budget every year without using any particular formula. For example, committee members will be aware of Britain's triple lock system, under which the state pension increases annually by the rate of inflation, earnings growth or 2.5%, whichever is highest.

In 2010, the national pensions framework stated: "In order to maintain this aim of preventing poverty for older people, the Government will seek to sustain the value of the State Pension at 35 per cent of average weekly earnings". Preliminary figures from the CSO for the fourth quarter of 2016 indicated that the average weekly earnings in Ireland was just over €716. Under the framework, this means that the State pension, currently €238 at the top rate, should be €250.62. Age Action believes that the 35% target should not simply be identified as aspirational, but should be used, and supported in legislation, as the minimum benchmark for the State pension.

It is also essential that, in considering the reform of the State pension in the years to come, the committee examine the gender disparity in pension income and, particularly, the failure to backdate the home maker's scheme, which was introduced in 1994. This time limit means that, for the current generation of pensioners and many more to come, the home maker's scheme will be of little or no benefit.The refusal to backdate the scheme, combined with the 2012 pension cut and the averaging out approach, means that hundreds of thousands of pensioners - mostly women - face far smaller incomes in their old age than they had anticipated. The contribution that these carers made to society, whether by raising a family or stepping in to provide care for a loved one where the State was unable to do so, must be recognised by our State pension system.

Committee members will be conscious of discussions ongoing in the Department about the introduction of an auto-enrolled, mandatory, second-tier pension. Age Action supports any initiative that would help to deliver a secure income in retirement for older people, but we have concerns, including about the potential for this to affect the State pension system. Our first concern is that, by potentially investing this money in a private pension scheme, we will see a privatisation of risk. Individuals will see the value of their pensions rise and fall with the market while presumably being obliged to pay fees to private pension companies.

Our second concern relates to the sustainability of the State pension. While there are many different opinions about how it can be assured in the years to come, most accept that there will need to be some sort of increase in the social insurance contributions made by employers, which are among the lowest in the EU. As unpalatable as any tax increase might be, it will be made doubly so if employers are already making payments under the new auto-enrolment scheme. This potential for the introduction of a mandatory, second-tier pension to undermine the existing State pension has not received the attention that it should.

Writing in 2015, the economist Professor Colm McCarthy pointed out that Ireland did not face a demographic crisis, but a policy crisis that was a product of our collective failure to prepare and plan for the coming societal changes in age and demographics. The objective of our national pensions policy should be to ensure that growing old in Ireland does not mean growing poor.

As a first step, we should assess whether the resources that we are currently allocating could be better spent. As committee members will be aware, we spend approximately €7 billion on the State pension every year, but we also spend approximately €2.4 billion as the total cost of private pension tax reliefs according to research by Dr. Micheál Collins and Professor Gerard Hughes. In 2014, the top 20% of income earners received 73.6% of this tax relief compared with 0.6% for the bottom 20%. The national pensions framework declared that tax relief on private and occupational pensions should be set at 33%. In response to a parliamentary question, the Minister for Finance, Deputy Noonan, subsequently estimated the savings to the Exchequer of such a move to be approximately €180 million. Were tax relief to be reduced to 33%, could the savings achieved be used, for example, to pay the bulk of the €290 million estimated by the Department as the cost of backdating the home maker's scheme? Put simply, of the billions of euro in the State pension and private pension tax relief that we are currently spending on ensuring that people have a decent pension in old age, are we spending it in the most effective and fairest way to provide incomes for pensioners?

I urge the committee to play its role in planning for an ageing society by emphasising that reform of the State pension should be the first priority for pension reform, including indexing the rate to weekly average earnings; leading calls for backdating the home maker's scheme; ensuring that the proposed mandatory, second-tier pension does not undermine our existing first-tier State pension system; and reviewing the current allocation of State resources in the pension system to ensure that it is fair and equitable.

I thank committee members for their time.