Mr. Tim Duggan:

Good morning everybody. I thank the Chairman and the committee very much for this invitation to discuss the Report of the Commission on Pensions. I apologise for not being able to attend in person.

As I am sure the committee is aware, the Department is required by law to conduct an actuarial review of the Social Insurance Fund every five years. The last such review, reflecting the financial position of the fund at the end of 2015, was completed in October 2017. Among its projections were that annual shortfalls were estimated to increase from 2021 onwards as the ageing of the population starts to have an impact and that in the absence of action to tackle it, the deficit will increase to €3.3 billion by 2030 and to €22.2 billion by 2071. Those are annual figures. Since then, certain findings of the 2015 review were examined again in preparation for the work of the Commission on Pension's work. In short, this examination confirmed the significant deficits that the fund is expected to experience. We are now finalising preparations to conduct another review for completion in 2022.

It is clear to the Department that considerable change is under way in the demographic make-up in Ireland whereby, thankfully, people are living longer, healthier lives, which means that action is required to secure the viability of the Social Insurance Fund in the near and distant future and, by extension, to protect the current contributory State pension system which is, as the Chairman said, the bedrock of pension provision in Ireland. In that context, the law had been changed to increase the State pension age to 67 this year and to 68 in 2028, preparations were under way to change the system from the yearly average approach that applied for the past 60 years to a total contributions approach. In addition, consideration was being given to options for increasing funding. This resulted in considerable debate during election 2020 about State pensions and, in particular, about the imminent increase in the State pension age. Arising from that, the Government committed in its programme for Government to establish a Commission on Pensions to examine sustainability and eligibility issues with the State pension system and the Social Insurance Fund and to defer any changes in the State pension age pending its analysis and report.

The commission was established this time last year. It was an independent body and, as stated by the Chairman, its membership comprised 11 people who were pension experts, academics, members of civil society and representatives of workers and employers.

As a result of the State pension age deferral, the Department estimated that the increase in expenditure in 2021 on State pensions would be €221 million, that this would increase to an additional €453 million next year and that the figure would continue to increase every year thereafter. The actual additional expenditure to the end of September 2021 was €207 million. It is now expected to total approximately €275 million by the end of the year. That increase is also likely to be reflected in future years. As a result, the additional expenditure will actually be likely to be in the region of more than €500 million next year and will get higher every year from then on. This shows clearly how the demographic impacts on the State pension are real and how the sums involved are large and grow quickly, even when relatively simple decisions are made or proposed alleviating actions are postponed.

This underscores the need for very careful analysis of policy options and positions and highlights how the establishment of the Commission on Pensions was necessary to look at the State pension system in the round and provide independent advice to Government, first, on the options it has and, second, on a recommended course of action. The commission, as referred to by the Chairman, has completed its work and its report was published on 7 October 2021. It is a comprehensive report that takes account of an extensive consultation process, an examination of international approaches, and an assessment of various analyses of population, labour force and expenditure projections. It has unambiguously established that the current State pension system, as it stands, is not sustainable into the future and that change is needed.

In this regard, the commission has set out a wide range of recommendations. Some of these are designed to make the system fairer, some to mitigate cost pressures and some to increase the funding of the system. In the interests of older people and future generations of older people, the far-reaching recommendations in the report need to be considered very carefully. With that in mind, in its initial consideration of the report at its meeting on 7 October, the Government decided first: to ask the Commission on Taxation and Welfare for its view with respect to the PRSI changes recommended by the commission by end February 2022, which is in keeping with that commission's terms of reference; to refer the report to this committee for its views; and to refer it to the Cabinet sub-committee on economic recovery and investment for consideration over the coming months. It is expected that this will be done over a number of meetings.

Taking all of this into account, the Minister intends to bring a recommended response and implementation plan to the Government by end of March 2022. In this regard, the Minister is looking forward to hearing this committee’s view, at its convenience, and I hope this morning’s discussion will be helpful to it in developing that.

I would like to conclude by saying that there are no policy proposals for the State pension system that cannot be challenged or, equally, that would find universal support. We need, however, to be realistic here as our State pension system is facing very serious sustainability challenges. We need to consider the very real consequences of failing to implement essential reforms to fund a sustainable and adequate State pension system.

I would like to compliment and thank Josephine Feehily, who was chair of the Commission on Pensions, Roma Burke, who chaired its technical sub-committee, and their nine other colleagues on the commission on an excellent analysis and report. My team provided the secretariat to the commission, and I can assure this committee that it was a very busy team indeed such was the intensity of the commission’s activities over its eight months. I will now hand over to Ms Feehily to take the committee through the work of the commission and its recommendations in some detail. Mr. Flynn and I will be more than happy to assist the committee with any questions it has after that.