Oireachtas Joint and Select Committees
Wednesday, 12 February 2014
Joint Oireachtas Committee on Education and Social Protection
Implications for Employees of Changes to Pension Age: Discussion
We are now moving to the next item of business, which is implications for employees of changes to the pension age. This is the second item for consideration by the committee today in public session. I welcome from the Department of Social Protection, Dr. Orlaigh Quinn, Ms Patricia Murphy and Mr. Niall Egan; from the Department of Jobs, Enterprise and Innovation, Mr. Martin Shanaher, Ms Deirdre Sweeney and Ms Siobhán O’Connell; and from ICTU, Mr. Fergus Whelan.
Before I call on the first speaker I wish to draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence on a particular subject and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or an entity either by name or in such a way as to make him, her or it identifiable. The statements they make will be published on the committee's website following this meeting. The same is true for members, in respect of the long-standing parliamentary practice. I ask the witnesses to turn off their mobile phones because they interfere with the broadcasting services. I call on Dr. Orlaigh Quinn to make her opening remarks on behalf of the Department of Social Protection.
Dr. Orlaigh Quinn:
I thank the committee for the invitation to attend today’s meeting. With me is Ms Patricia Murphy, who works on the pensions policy side in the Department of Social Protection. Also here is Mr. Niall Egan. He works on the working age policy side.
First, I will give some background to the State pension age changes. My colleagues in the Department of Jobs, Enterprise and Innovation will provide further information on the employment aspects. The State pension is a key social welfare payment and accounts for some 30% of social welfare expenditure. It is the fundamental basis for the Irish pension system and it is a very valuable benefit. A number of changes have been introduced to the State pension over the last number of years, which include the changes to State pension age. From January 2014, State pension age has been standardised at 66, in 2021 it will increase to 67 years and in 2028 it will increase to 68 years of age. There is a strong underlying policy basis to these changes. They are underpinned by demographic changes and concerns regarding the sustainability of pensions. The need for State pension age increases has been set out in a number of policy documents including the Green Paper in 2007 and the national pensions framework in March 2010 and most recently the OECD Review in April 2013. The latter noted the significant challenge of funding additional pension spending as a result of population ageing. The demographic changes show very positive trends. More people are living to pension age and, when people reach pension age, they are living longer. However, that does create concerns for the future sustainability of the pension schemes. Specifically, the ratio of the working age population to pensioners will decrease from 5.3 at present to 2.3 by 2050. The number of older people will increase from 12% of the population in 2012 to an estimated 23% in 2050. In the mid-1990s, life expectancy for males was 73 and for females 78.5. Today, for those aged 65, life expectancy is approximately 82 years for men and 85 for women. That will rise to 84.1 and 87.4, respectively, in 2030. These demographics clearly show that in order for our pension system to be financially sustainable into the future, it is critical that people are able to provide for themselves in retirement.
I will focus on the change from 65 to 66 in January 2014. The State pension age was standardised at age 66 with the abolition of State pension transition. It is helpful to know the background to this scheme. The existence of the State pension transition is historical and relates to the qualifying age for the contributory State pension which, up until the early 1970s, was set at 70 years of age. The transition State pension which was then known as the retirement pension was introduced at that time to bridge the gap for employees who had to retire at 65. The qualifying age for the contributory State pension was subsequently reduced over time to 66 years, which left the transition State pension effective for just one year. The State pension transition scheme has been criticised over the years because in order to qualify for it an individual had to retire from the workplace. That acted as a barrier to people continuing in employment.
Also, in reality, the numbers availing of the transition State pension have been quite low. The Department has analysed its award figures for the transition State pension scheme in 2011 and 2012 in order to assess the impact of its abolition. The following is the position. In 2011, a total of 12,052 people were awarded the transition State pension. However, of the 12,052, only 12.3% came from employment, while 48.5% transferred from a different social welfare payment and the remainder were primarily a combination of people already retired, paying credits or were self-employed. In 2012, a total of 11,130 people were awarded the transition State pension and of these, 12.5% came from employment with 50.6% coming from another social welfare payment. Further checks were undertaken and similar trends were identified for 2006 and 2007.
That would indicate that a significant number of people have already left employment well in advance of pension age, many moving into other social welfare schemes. What is clear is that people make up their own minds depending on their individual circumstances. That is also evidenced by the fact that effective retirement age – the age at which people actually retire - in Ireland is 63.3 years. It also reflects the fact that there is no statutory retirement age in Ireland. Retirement age and pension age are two separate concepts. The age at which an individual retires is a matter for agreement within each contract of employment and the employer and employee relationship.
Having made the changes to the transition State pension I wish to focus on new arrangements for older jobseekers in terms of income supports and transitioning from work into retirement. All the Department's short-term schemes are payable to age 66. Individuals who exit the workforce prior to pension age may seek the support of either the jobseeker's benefit or the jobseeker's allowance schemes. In order to qualify for either of these payments an individual must be genuinely seeking and available for full-time employment. Both of those conditions will continue to apply to older jobseekers. In 2013 administrative changes were introduced for older workers aged 62 years to support and add to the transition measures already in place. Under existing legislation, where an individual has at least 156 paid social insurance contributions and is 65 years of age they will continue to receive jobseeker's benefit until their 66th birthday. The provision extends the duration of jobseeker's benefit for recipients who are 65 years of age.
Ordinarily, people in receipt of a jobseeker's payment must also engage with the Department's activation measures and can face sanctions if they fail to do so. On foot of the changes now introduced, the requirement to engage with the Department's activation process has been eased for jobseekers aged 62 and over. The individuals will no longer be required to engage with the Department's activation process and sanctions such as penalty rates will not be applied should they decide they do not wish to engage with the activation process. However, this group will still be able to avail voluntarily of an array of supports, which are available from the Department if they wish to return to work, training or education. In addition, special arrangements have been made so that the majority of older people in receipt of a jobseeker's payment will only have to sign on with their local office once a year and their payments will be paid directly into their bank accounts.
Changes were introduced to occupational pensions in the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013 as a precaution to ensure that links between State pension and occupational pension schemes can be properly administered.
The legislation provides for a variety of situations to ensure pension scheme trustees can act appropriately in administering their scheme and will not be prevented by any conflict between the Pensions Act and scheme rules from making necessary arrangements to amend the scheme. The legislation facilitates the cessation of a bridging pension which, depending on the wording of individual pension scheme rules, could otherwise be paid indefinitely and it can also determine the correct rate of occupational pension payable in the case of an integrated pension. The legislation gives trustees discretionary amendment power to make whatever change is appropriate but ensures no scheme member will be worse off as a result of the change.
In the longer term the increases in State pension age which have also taken place in many other countries reflect the fact that the structures of our society are changing. The State must prepare to ensure it will be able to continue to sustain pension payments in the future. That means that people need to participate in the workforce for longer and contribute more towards their pension. The OECD, in its recent review of the Irish pension system, supports longer working and more flexible retirement arrangements. An interdepartmental group has been set up and is looking at the issue of working and retirement and a number of measures are under consideration. I am also aware that some employers are responding to the changes made by, in some instances, increasing the retirement age to 66 years and, in other instances, awarding one year fixed-term contracts.
I hope I have given members an overview of the pension age changes. I look forward to hearing their views and would welcome any question they may wish to ask.
Mr. Martin Shanagher:
I thank the joint committee for its invitation. My Department welcomes the opportunity to have this discussion with it. I am joined by Ms Deirdre Sweeney of the Equality Tribunal which recently transferred from the Department of Justice and Equality to my Department and by my colleagues, Mr. Dermot Sheridan and Ms Siobhán O'Connell, from the employment rights policy unit. I am speaking on behalf of the Department of Jobs, Enterprise and Innovation.
As my colleague from the Department of Social Protection, Dr. Quinn, has pointed out, the increase in State pension age is linked with broader public policy issues and is taking place against a backdrop of fundamental shifts in the demographics of the population. As a society, we are ageing which, ultimately, will lead to a shrinking ratio of working population to pensioners. People are living longer. Older people are healthier and more active and have valuable contributions to make to society, either from within the workforce or in other aspects of their lives. Our colleagues have also referred to the issues around improving the long-term sustainability and adequacy of pension systems and the public finances. All of these issues are interlinked and one of the key policy responses is to encourage longer working lives, a goal of which my Department is fully supportive. Encouraging people to stay in the workforce beyond what society may view as a normal retirement age is as much about cultural change as it is about removing more tangible obstacles to working longer. We need to challenge societal norms around retirement or retirement age and other cultural issues or societal attitudes to older people to promote the many positive aspects of their remaining in the workforce. Addressing that issue is very much a societal challenge.
In addressing the specific issue of the implications for employees of the increase in the State pension age, it is important to clarify for the committee the statutory position on retirement ages. Apart from certain public sector employees where certain statutory retirement ages may apply, in our legislation there is no statutory retirement age for employees. A contract of employment will generally contain a retirement age, although not always, but this is a matter of contract between the relevant parties. Consequently, there is absolutely no prohibition on employers and employees setting down a retirement age beyond the normal retirement age or the age at which the State pension is payable. An employer and an employee are free to agree to a retirement age of 60 years, 70 or any other number they choose. In general, employment rights legislation which is administered by my Department does not contain an upper age limit. The upper age limit for bringing claims under the Unfair Dismissals Acts 1977 to 2007 was removed by a provision in the Equality Act 2004. It is now the case that a person of any age, if dismissed, may take a case under the Unfair Dismissals Acts, unless she or he has reached what is considered to be the normal retirement age for employees in similar employment, if there is one. In such circumstances the burden of proof is on the employer to prove the normal retiring age. Furthermore, the upper age limit of 66 years for receipt of statutory redundancy payments was removed by the Protection of Employment (Exceptional Collective Redundancies and Related Matters) Acts 2007.
The key issue that arises around compulsory retirement at a given age is whether this entails discrimination on age grounds. Therefore, the more usual avenue for redress for employees compulsorily retired is to take a claim under the Employment Equality Acts to the Equality Tribunal. I must draw the committee's attention to the fact that policy responsibility for these Acts remains with the Minister for Justice and Equality. However, the Equality Tribunal, the independent statutory body responsible for investigating and mediating on complaints made under the Acts, has recently been brought under the umbrella of the Department of Jobs, Enterprise and Innovation in the context of the creation of a streamlined workplace relations service. Essentially, this will bring the Equality Tribunal, the rights commissioner service and, in the first instance, the activity of the Employment Appeals Tribunal together in a single adjudication mechanism in the same organisation with the Labour Relations Commission, LRC, and the National Employment Rights Authority, NERA, to form the workplace relations commission, from which appeals will go to the Labour Court as heretofore.
While section 34(4) of the Employment Equality Acts provides that it is not unlawful for an employer to fix a compulsory retirement age for employees, the Equality Tribunal has in recent decisions interpreted these Acts in the light of rulings of the European Court of Justice in cases concerning Framework Directive 2000/78/EC which prohibits discrimination in employment and occupation on various grounds, including age. In these cases the European Court of Justice has found that terminating someone's employment on the basis of his or her chronological age is considered as direct discrimination under EU law. However, the court has further found that this discrimination can be justified if it arises as the result of a legitimate aim in a state's social or employment policy. If an employer chooses to defend the mandatory retirement age before the tribunal, he or she faces the challenge of objectively justifying that retirement age. In a number of cases heard by the Equality Tribunal employees have successfully challenged the retirement age set by their employers.
In terms of scale of the impact of the changed State pension age, it is worth recalling the figures quoted by my colleague. Of the 11,000 individuals awarded the State pension - transition in 2012, only 1,390 came from persons who were in employment, the remainder being already retired, on another social protection payment scheme or self-employed. In the broader scheme of things, that is a significantly reduced figure of employees who will be impacted on by the increase in the State pension age this year.
With regard to how employers are responding to the change in the State pension age and its implications for them and their employees, it is too early to form a definitive picture. However, it is our understanding from our discussions with IBEC and employer representatives that while many employers are defending their right to set a normal retirement age within their enterprise which would normally still be 65 years, a significant proportion of employers are trying to facilitate employees who wish to continue working beyond their 65th birthday. Some employers have already changed the retirement age for their employees, while others have indicated that they intend to change it for all employees. As mentioned, others have awarded one year fixed-term contracts to see people through the additional age. That is not surprising because to refer to a UK study, when the United Kingdom had a default retirement age, an employer had to remind an employee one year in advance of the retirement age. The employee had to apply formally and receive a written response from the employer on whether he or she was allowed to stay in the job. The study found that, apart from a few very exceptional cases, employees were committed to staying on. We hope that is the picture emerging here.
My Department will continue to work closely with the other relevant Departments on these issues through the interdepartmental committee on working and retirement, chaired by our colleagues in the Department of Social Protection. As Dr. Quinn advised, that group is considering a range of measures to address the need for longer working in the context of demographic change. My Department will also keep lines of communication open with both employer and employee representative organisations to ensure we have an understanding of what is actually happening on this issue since it was crystallised in practice from 1 January this year.
I hope that gives the committee a broad sense of the employment aspects involved. I look forward to hearing members' views and responding to questions, as needed.
Mr. Fergus Whelan:
I thank the Chairperson for the invitation to speak to the committee on this subject.
This decision to raise the pension age, we are informed, was agreed with the troika. There was no political debate, no public consultation and no cost-benefit analysis of the measure. There was no consideration given to the significant labour market issues involved. Neither was there thought given to issues of fair play, equity or minimising the hardship on those worst affected.
Citizens are being deprived of a benefit they earned and paid for. No information was given to the workers who are to lose €12,000, €24,000 or €36,000, in today's money and depending on their age. Almost 15% of salary was paid on behalf of these workers in pay related social insurance, PRSI, including the employer and employee contributions, throughout their working lives. Many of these workers also worked and paid taxes through all that time. They are now victims of a decision made by people who will suffer no loss but rather will continue to enjoy good pensions, at age 65 and younger. There is no equity or justice in this decision and it will be damaging to social cohesion in Ireland.
Apologists for this measure suggest that as people are living longer, it is desirable that they should work longer. Congress holds that people should be free to work longer if they wish but should not be obliged to work longer in order to avoid poverty. No provision has been made to facilitate workers remaining in employment after age 65. Congress asked the Department of Social Protection, which sponsored the legislation, if it would continue to terminate its employees at age 65 regardless of whether they qualify for a State pension, and we never got an answer to that question. Neither officials from the Department of Social Protection nor from the Department of Jobs, Enterprise and Innovation have given any signal to private sector employers whether to retain or dump their employees at 65 regardless of pension entitlement. This measure is not designed to help older workers to stay in employment. It is to deny them an entitlement.
Employers and unions were given no opportunity to consider the other complex labour market issues involved. IBEC was concerned that the lack of clarity concerning the legality or otherwise of sacking a person at 65 could lead to litigation. Congress was more concerned that a worker terminated with no State pension entitlement might picket his or her employer. Other labour market issue that were ignored included the effects on morale and productivity of workers either being retained in, or forced out of, employment against their will; the labour market rigidities involved in conferring rights on older workers to keep their jobs; whether a worker in the construction and related sectors can work safely at heights and in inclement conditions up to the age of 68; and the effect on youth unemployment and worker morale of older workers holding down positions which otherwise might provide opportunities for advancement.
Pension planning is a long-term discipline. It has been a long-standing public policy that citizens should plan their pension provision over the long term. These measures make nonsense of the advice of the Pensions Board on financial planning for retirement. Up until now, most occupational schemes were integrated with the social welfare system. One knew what one would get, one knew what one had to contribute and one knew what one's employer had to contribute to give one replacement income at age 65. In the case of some workers, this decision wipes away three years of that legitimate expectation and makes nonsense of the ability of anybody to plan for retirement. Making major pension changes in such an ad hocway is not only a cruel injustice to individual workers but a denial of the right of legitimate expectation. Long-term damage done will be done to pensions in general. Why would anyone agree to pay into a pension scheme, either public or private, if the rules can be changed at the eleventh hour to withdraw an entitlement already earned and paid for?
Congress accepts that the pension age will rise throughout Europe. However, Ireland is going further and faster in this regard than any other country in the EU. We believe that pension reform must be long-term and hurrying these measures without proper consideration or debate is wrong in principle and potentially disastrous in practice. These changes will not save the State much in the short to medium term but will impose severe financial hardship on individuals in the first three years in what should be best the best years of their retirement.
We asked the Government and its predecessor to postpone these changes and to increase the pension age in a fairer and more gradual way. Congress suggested that someone who reaches 65 this year could lose one month's pension entitlement, someone who reaches 65 next year could lose two months, etc. We could have reached the same end game but spread the pain much more fairly across the workforce. The lack of public debate on this issue has meant that so far, nobody has attempted to explain to the Irish public why we must have the highest pension age in Europe.
I want to say something about the principles of pension reform. Pension reform should be based on the following principles. Pension reform should be long term. It should not be hurried. It should do as little violence as possible to the right of legitimate expectation. Pension reform should, as much as possible, protect accrued benefits already earned and paid for. It should involve consultation with stakeholders so that related matters such as labour market policy issues can be considered in advance. Pension reform should be based on the principle of equity. Losses and hardship should not be imposed on certain categories of worker while elites remain immune. Pension reform should give workers and their employer sufficient time to adjust their expectations and financial plans.
The troika did not impose this measure. Long before the advent of the troika, successive reports, published by the well-pensioned elites, rehearsed spurious demographic and other arguments to attack the modest public pension provision of private sector workers. No doubt the troika demanded the raising of the pension age, but congress does not believe it would have been so prescriptive.
This is a Government decision. The decision to change the eligibility criteria to take €1,500 per annum from the pensions of those, mainly women workers, who spent some time out of the workforce was not the troika's either. That was a very Irish decision. There is something incongruous about politicians and public officials making decisions which hurt other citizens but in no way impact on their own comfortable arrangements.
A 59 year old private sector worker, who started work at 16 and who has had 15% of his or her income paid in PRSI since then, will lose circa €24,000, in other words, two years' pension. Such a person will now get his or her pension at age 67 after 51 years in work, assuming his or her employer does not sack him or her at 65 which the employer is entitled to do. In today's terms, using the average industrial wage as a benchmark, circa €362,000 in PRSI contributions would have been paid on the worker's behalf.
As I gave the committee this paper in advance and the next statement is not quite true, I want to withdraw it. I stated that any politician who went along with this measure, who is aged 59, will not be asked to wait till age 67 and then settle for a pension of €12,000 per annum but that is not quite true. For any veteran politicians here who were elected in the election before last, it is certainly true.
Congress challenged this measure to no avail last year. We have no expectation that the cosseted elite who brought this about will do anything to mitigate the injustice. This question will only be revisited when private sector workers who have been attacked by this measure wake up and realise what has been done to them.
When the committee was told earlier that those at 65 are already on some sort of pension entitlement since age 63, the question is not whether they are on an entitlement or not. The question is whether it is a means-tested entitlement. That is the crucial issue. It makes the injustice worse to say that only a small number of people will bear the brunt of this.
I thank each of those who spoke and presented to the committee this morning. It is evident from the last speaker how much anger there is about changes that have been made. I suppose when any change is being made to people's long-standing entitlements, there needs to be a sense of fairness and respect for legitimate expectation. I guess the difficulty in this area is that there is a dramatic change in the number of those who are working and those who are drawing down benefits. As was said earlier, it has moved from a position where there were six working for every one person drawing down the pension and, by 2050, there will be two for every person drawing down the pension. I suppose we all have to be clear around this table on putting in place the right strategies for the future.
I understand that those who will now not qualify for the transitional State pension or State pension as early as expected can avail of a jobseeker's payment. Dr. Quinn pointed out in her presentation the arrangements that apply. The individuals will not be subject to the same activation measures as others. However, what arrangement will apply to somebody who is not required to retire at 65 but who has an option to do so under his or her contract? One might retire voluntarily at 65 having always believed one would do so. Is a person in such circumstances automatically able to transfer to a jobseeker's payment? Will he or she be affected by the usual rules applying to jobseekers, which stipulate one is not paid for the first few weeks? Will one be able to proceed to the jobseeker's payment only if one is required to retire at the age in question? I am not sure. I was asked a question about this last week and would like to have the matter clarified.
It would be remiss of me in the week that is in it and given the announcement of the Aer Lingus strike yesterday not to raise the issues associated with the entitlements of staff who have paid into pension schemes in the expectation that they would be able to draw down benefits at the relevant time and that their employer would continue to honour the contractual rights. One of the most significant issues that was missed and which we have been discussing today concerns the changes that have been made in the pensions legislation that was before the Oireachtas before Christmas. We raised at the time the fact that the Bill was silent on circumstances where there is not a double insolvency. The legislation was very clear about what happens when there is a double insolvency - when both the scheme and employer are insolvent – but was silent on circumstances where a scheme is insolvent and the employer is still making a profit. Many schemes are insolvent at present given what has happened in the financial markets in recent years. The OECD is very clear on this and has made a recommendation that there should be a minimum amount of funding, in the order of 90%, in place before a scheme can be closed where a company is still in a healthy financial position, yet that was not provided for in the legislation. We are seeing the result of this in the Aer Lingus context. Staff are fighting and there is considerable angst over whether an employer who is financially viable would be able to walk away from a scheme and leave employees without entitlements that they paid for and always expected to be in place. The Bill did not address that. Are there measures afoot to deal with these kinds of circumstances and to ensure we are living up to the OECD's recommendation in that respect?
A key aspect of pension planning was to involve the putting in place of an auto-enrolment scheme for all workers so they would all be enrolled automatically in a scheme from the earliest age possible and thereafter make contributions along with the employer and State, depending on their earnings. The employee might make a small contribution initially but at least he or she would begin saving at the earliest possible age. Unfortunately, what happens is that most of us do not think about pensions until we are in our 40s, at which time we must invest a huge amount of income to try to build up a private pension.
When the arrangement was announced by the last Government, in 2010, the intention was that it would be put in place in 2014. With the economic crisis, the decision was wisely postponed so as not to place an additional burden on employees and employers. What is the current position? Has a timescale been set? The Minister for Social Protection indicated last year that it is still the Government's intention to have such a scheme but she did not give a timescale. What is the current thinking? The scheme should not be put off endlessly and we should be clear on when it will kick in.
I thank the three speakers for their contributions.
The Social Welfare and Pensions Act 2011 gives effect to some of the arrangements we are discussing today. When we discussed that legislation, it was guillotined, like so many other Bills. These Bills were rushed jobs and we did not get to discuss fully the implications of the proposed changes. There was some minor discussion. I raised concerns on Second Stage of the social welfare and pensions legislation and submitted amendments. However, the way the business was done in the House meant we did not discuss the implications that Mr. Fergus Whelan rightly pointed out would affect those on low pay and often those working on sites, for example. There are not many working on sites now. Such people are the ones who opted to retire at 65 and are now being asked to continue working until 68. People who have made arrangements for their pensions now suffer the consequences of going on a reduced payment for six months because the jobseeker's benefit and allowance are being rowed back. Previously, the individuals would have managed to get the State transitional pension.
Can Dr. Quinn answer the question that Mr. Fergus Whelan was putting? Were the consequences of these changes examined? Is Europe out of touch with Ireland, or are we out of touch with the changes and the speed with which we have introduced changes supposedly because of an increase in the life expectancy of the retired? The logic given to us at the time for the measures introduced was that the social insurance fund would be depleted in the future and that, because people are living longer into old age, there should be a change to the retirement age. Was no alternative considered, such as getting rid of the tax relief on private pensions or increasing the PRSI payments made by employees or employers to levels similar to those that obtain in Europe?
I thank the speakers for their contributions and explanations. I would certainly err on the side of adopting the views Mr. Whelan is expressing. That is the way I felt about the whole process as it was going through. What is the position on workers losing €12,000, €24,000 or €36,000? Is it the case? Could Dr. Quinn clarify the matter?
What was the impact on the pensions of women and carers? Is the Department examining the arrangement whereby one must have continuous contributions over 20 years? This has affected and will affect women. How many women are affected and what were the implications?
A point was made on someone who is 62 and in receipt of a jobseeker's payment. A 65 year old man came into my office some days ago as he had been told he had to go on a Tús course. He was a little shocked as he was just waiting for material to come through on his pension. These kinds of stipulations are not necessary and there is no point to them. I do not agree with having to have an elderly man in such circumstances do a Tús course or take up a JobBridge placement. The man felt under pressure to do the course because he was afraid his jobseeker's benefit or allowance would be cut.
An important point that Mr. Fergus Whelan made was that a person who wants to work for longer should do so by choice and not be forced to do so. He should not be forced out of a job either way. An argument is made that the average age will increase and that we must divvy out the money with this in mind. We should be protecting our pensions as much as possible. A point was made that in the 1970s the State pension age was reduced from 70 to 65. Is that because all the people were dying younger? I do not know.
In any event I do not think that is a viable argument. We should have a society that protects our pensions and pensioners in the future. We have to examine that aspect.
My questions are similar to those of Deputy Collins. I thank the witnesses for their presentations. When I heard about the changes, I approached the Minister about the jobseeker's benefit for someone who was on a transition pension, so that it would be extended for 12 months. In fairness, she agreed to it, so I welcome that move. However, as we progress onwards what will happen to a person who reaches the age of 67? What will happen in the year in between? Will such people be obliged to apply for the jobseeker's allowance? If they have received a lump sum from the company they worked for, that will obviously affect them adversely. Will they be using up their lump sum for a year?
Mr. Whelan referred to women and I will make a bigger issue of that matter. I have tabled an Adjournment matter in the Seanad next week on this issue, concerning the years 1968 to 1994. A woman applying for a pension today would have been about 20 in 1968. She would have given up her job to rear her children. In 1994, homemaker's credits were introduced so today's women will all be looked after to that extent. They will be able to claim credits for the time they rear their children. However, from 1968 to 1994 there were no homemaker's credits. Women were also affected by the marriage bar and had to give up working. We are talking about a small cohort of women. They are women who went to work before their children were born, were laid off, and then resumed work afterwards. Some of them may now be on a widow's pension, while others may not have gone back to work once their children were reared. There were various reasons why some of them may not even have entered employment until after their children were reared, so they will not be affected.
The cohort of women to which I refer are applying for pensions, so they are affected due to the fact that they left work to rear their children. If homemaker's credits can be given to women from 1994, why not from 1968? It would be easy to identify those women because they have been paid the children's allowance. I am pressing this matter strongly with the Minister and I will not give up on it easily.
It was said that people have an option to continue working after 65 if they want to, and the European Court ruling was mentioned, but that is not happening on the ground. I know for a fact that women who were home helps were forced to retire at 65 and had no choice. They were told to go and that was it. It is not as straightforward as saying that one can challenge it. How long does it take to go through the Labour Court? A person may have left work for a year before that court will hear a case and reinstate them.
I have a lot more to say but it is not fair to take all the time. I would appreciate hearing the witnesses' responses to those questions.
Dr. Orlaigh Quinn:
I thank the members for their questions and will try to answer all of them. I will ask my colleagues to join in as well. Senator Power referred to the sense of fairness and the anger involved. Comments were also made about a lack of consultation. In 2007, we started looking at pension reform in the Green Paper. Since then there has been an enormous amount of consultation. I personally met over 500 people when we did consultation tours around the country. Some 340 groups gave us papers and presentations, and the retirement age was a significant part of that process. We have had a large number of consultations since then. I find it hard to accept therefore that we have not had a public debate on this issue. It has been taking place.
I accept that the changes came in very quickly, which is not desirable in terms of pensions. It is good to give a long lead-in for any pension changes. However, given the economic recession we faced and the need to achieve savings, a huge number of different areas were examined, and this was just one of them.
The issue of demographic factors and their future effect was also raised, but this is happening right now. Between 2008 and today we have had more than 100,000 additional pensioners on the social welfare books. Our costs have increased from €5.5 billion to €6.5 billion. It is not something that is going to happen in 2030 or 2050 - we are dealing with such growth every single year.
Senator Power asked a question about people who voluntarily choose to retire at 65. They will come under the same rules and conditions that apply to all our schemes. If one voluntarily leaves work there is a nine week period during which one would not qualify for a social welfare payment. If a person has to leave work as part of their contract, they immediately benefit. In the main, they would go on to a jobseeker's benefit, so the question of their assets would not arise because they would have sufficient stamps to qualify for that.
Dr. Orlaigh Quinn:
Exactly. I will go through the questions as they were raised. A question was raised about the entitlements of Aer Lingus staff and defined benefit changes. I do not want to comment on a particular scheme when discussions are ongoing. However, the pension changes we made towards the end of the year did not just focus on double insolvencies, they also gave options to trustees to restructure schemes. There are elements, therefore, that facilitate such restructuring. I do not particularly want to comment on any one scheme.
A specific question was asked about debt on employer legislation and members of this committee will be familiar with the debate that took place when that legislation was going through. The Minister clearly went through all the reasons why the decision was made not to go down that road, both in terms of unintended consequences and the competitive advantage it might give to some employers over others. There was a series of reasons why debt on employer legislation was not proceeded with, including focusing on schemes which at that time were already in debt. Many of those arguments were discussed in the Oireachtas at that time.
Senator Power also asked about future plans for auto-enrolment. We have had the OECD report which is being examined by the Cabinet sub-committee on pensions. There has not yet been a decision on a timescale, but the Minister has said she will make announcements on this matter fairly shortly. We are expecting that to happen.
Deputy Ó Snodaigh asked about implications for the low paid and we will focus on all the available social welfare schemes. That also applies to some of the questions concerning women, but I can come back to that matter.
We did look at all the alternatives concerning pension sustainability, which are on the table. They include tax reliefs and other alternatives. The process of pension reform is ongoing. Many of the discussions involve political decisions and I cannot comment on them. However, I can say that they are all being examined in great detail.
The Social Insurance Fund is under water at the moment and all our projections are lined up. At the moment, I think it is €1.3 billion and our projections would suggest €3 billion in terms of the future impact of that funding. We are providing an additional €190 million in the social welfare budget, without making any changes, just to cater for the additional numbers coming into the State pension every year.
Deputy Joan Collins asked about the impact on women and carers. Women and carers do get credits so it should not impact on their records. Senator Moloney commented on that in terms of averaging what it would cost and she asked why we would not bring it back prior to 1994. Approximately 46,000 people do not have a pension, so there is a major cost involved in bringing that back.
I do not have the figure in front of me. I think it was of the order of €300 million, but I can confirm this for the Senator. It was hugely significant.
They might not all be eligible for a pension because they might never have worked. I am talking about people who have worked, left to rear their family and then went back to work. That is the cohort to which I am referring.
Dr. Orlaigh Quinn:
On the backdating of the homemaker's scheme, €300 million is my estimate, but I can confirm this for the Senator. There was a very significant cost involved in giving people a pension where the income was not available in the Social Insurance Fund and where contributions had not been made.
Dr. Orlaigh Quinn:
A State pension is a very valuable benefit. If one were to go into an insurance company to buy a State pension - around €12,000 - one would need to have €300,000 in one's pocket.
In respect of the Tús course and the 62 year old individual concerned, the purpose in changing the retirement age is to encourage people to work longer.
Dr. Orlaigh Quinn:
The homemaker's credit is either retrospective or there is a cost involved. Obviously, some of the changes are happening now, while others will happen in the future. There is an interdepartmental group in place and we are looking at a range of options. Somebody mentioned people working and how the age used to be 70 years. There has been a huge growth in the number of older people working. Between 1998 and 2013, the number of people aged between 60 and 64 years who were working increased from 35% to 45%. All of our research suggests this has an impact on the younger population because countries which have very high youth employment rates also have very high numbers of older workers. I do not think one can say that just because one has older workers, one will knock out younger workers. In a recession one can see some of this, but we are really trying to focus on the future, pension sustainability and how we manage to keep older workers in work. I must also mention that all of our research suggests there are huge health and social impacts if people work for longer. Data from the longitudinal study - the TILDA research - very much support this finding in terms of the impact on people's mental and physical well-being.
Mr. Fergus Whelan:
Of course, it is beneficial for older people to work, particularly when they want to do so. There is nothing in the changes to facilitate older people working. It is not a question of giving a pension to women who do not have one. What has happened is that working women who took some time out of the workforce and expected to receive a pension of €12,000 per year have had €1,500 deducted from it as of last September. It is not a question of giving people more. It is taking money from people who had a legitimate expectation of receiving it.
Mr. Martin Shanagher:
Dr. Quinn has dealt with most of the issues raised, but there are a few that cross over. In respect of defined benefit and defined contribution schemes, the Department, the Labour Court, the Labour Relations Commission on the industrial relations side and others are engaged in that dispute. Therefore, we will not go into the detail of it, but it is an extremely complex issue of which everybody is aware and which is being worked on in ensuring there is a positive outcome.
Deputy Joan Collins spoke about people not being forced out of a job and mentioned that it should be voluntary. It raises the issue of whether one can legislate and simply deal with this problem by requiring employers to keep everybody in place until they are 66 years, 67 or 68. It might seem to be a straightforward option, but it turns out to be very complicated for a number of reasons, one of which is that the Court of Justice of the European Union has accepted that it is legitimate for an employer to have a mandatory retirement age if there is justification for it. It must have regard to public policy aims. The United Kingdom had something approaching it where it had a default retirement age which it only introduced in 2006 and removed in 2011. If one was to try to do this, some of the arguments would concern the expectations of other employees in terms of their length of service, the structure that was in place and when they might expect advancement or promotion which would constitute a legitimate reason for an employer to have a retirement age in order that those coming behind would be motivated to stay with the company, particularly if they had received a huge level of training and the company had invested a huge amount of money in them. Obviously, it is very important to say companies are changing and the responses we are receiving in discussions with IBEC suggest many employers are adding one year, changing their retirement age to adjust or offering a one year fixed contract.
The other issue that arises for companies is that it is not black and white where a company moves to defend its retirement age. If one looks at the terminology used in the legislation, one might think it is almost plain sailing for an employer and that he or she can set a mandatory retirement age, but it must be objectively justified. When cases have come before the Equality Tribunal, it has interpreted in accordance with the most recent CJEU case law which states it is not automatic. The test is a hard one. The bar is high and it quite difficult for employers to objectively justify having a mandatory retirement age. Quite a number of cases have occurred in which it has found in favour of employees rather than employers. As cases go through, employers are learning what is and is not permissible. Senator Marie Moloney has made the legitimate point that it can take a very long time, which is true. It can take a long time before cases are heard, which is probably why we are trying to set up the new workplace relations commission, the principal aim of which is to deal with cases much more quickly in order that if people have issues, they can have their cases heard much more quickly. The aim is to have cases heard within three months.
Even the issues considered legitimate at EU level such as allowing an employer to promote access to employment for young people by setting a retirement age or workforce planning-----
Mr. Martin Shanagher:
It could be age discrimination, but these are the objective reasons one could impose a mandatory retirement age. Certain countries impose mandatory retirement ages. Another reason is to ensure a mix of generations among staff in a company. It has also been pointed out that in the absence of a mandatory retirement age the only way an employer would be able to retire more elderly employees was to challenge their competence through a performance management system. The question arises of whether people want to work until they reach 70 or 75 years only to be told they no longer have the capacity to do their job. Issues arise in regard to the dignity of workers if that is the way they are treated.
On the abolition of the transition pension, an individual who reaches his or her 65th birthday in 2014 and has been working up to that point will receive jobseeker's benefit for the full year but somebody who has put in the years of work required for a contributory pension is entitled to apply for jobseeker's allowance if he or she is not working at the age of 65 years and may not qualify for it, depending on whether his or her spouse is working. This individual might be entitled to expect a transition pension, but he or she will get absolutely nothing. The cohort qualifying for jobseeker's benefit will receive a small bonus of three months, but there is no recognition for the other category. Has any thought been given to doing something for that category? How many people will be denied jobseeker's allowance on the basis of their spouse's means?
Mr. Niall Egan:
Jobseeker's benefit is based on the number of contributions paid in the relevant tax year. The relevant tax year for 2014 is 2012. However, we also take into account contributions paid in the previous two years. For argument's sake, if an individual was to claim today, we would take into account his or her contributions since 2010 in assessing the application for jobseeker's benefit. However, if he or she had previously claimed jobseeker's benefit and it had expired before his or her 65th birthday, the only recourse would be to jobseeker's allowance or another social welfare payment.
Mr. Fergus Whelan:
I can outline a number of cases in which older workers approaching retirement age take a voluntary redundancy package because they have calculated they will still have some of their lump sum when they reach their 65th birthday. This money would disqualify them in the means test for jobseeker's allowance.
Mr. Whelan corrected the record in regard to his written submission. Newly elected Deputies and Senators will no longer qualify until they reach pension age. The last Government only lasted four years and Members of the last Dáil did not qualify for any pension, even though they had paid contributions and the pension levy. Most people are not voted out of their jobs.
If the public sector wants to lead by example, it should allow staff to stay on until they reach pension age. As it is a State policy, the public sector should lead the way. The issue was raised with me by a constituent who would like to stay at work in the private sector until the age of 66 years. Should the legislation not provide such a right?
Mr. Martin Shanagher:
The Chairman is right in regard to the public sector. The same issue arises for public sector workers who have come in relatively recently and are now hitting the age threshold. I understand the issue is being examined by the Department of Public Expenditure and Reform, but, unfortunately, I cannot answer for that Department. The Chairman asked whether there should be a right in the private sector to remain at work for the additional year.
That is the issue. It sounds straightforward, simple and like an easy solution and the good news is that many employers are moving to give additional fixed-term contracts or are extending generally over time.
Mr. Martin Shanagher:
There is very good evidence from the United Kingdom in terms of what happened when it had this system in place for a number of years. The evidence published by the Department shows that it was not being given in rare exceptions. Mr. Whelan is right. It is too early for us to form a judgment in terms of how it will pan out in Ireland, but it is not a simple matter to legislate away for employers the objective criteria that could apply. It could be on health and safety or other grounds that it is appropriate for them to have a mandatory retirement age that is under 65 or 64 years. It is hard to legislate this away because of all the other criteria which even the European court is finding are legitimate.
Mr. Fergus Whelan:
There are quaint elements to the public service and I did not realise the practices followed until I started going into this issue. In the private sector, when people reach their 65th birthday, under most contracts of employment, as they stand, the employer is free to run them out the door. I acknowledge the European dimension, but that is the practice. However, in certain grades in the public service there are public servants who are not established and do not have long service. The practice in some organisations is that they are regarded as having reached 65 years on the last day before they turn 66. They can, therefore, be employed for a year longer than their private sector equivalents, which is good.
There are consequences and one which was never discussed was the impact on youth employment. The further retirement age is extended, the less opportunity there is at the other end. That is one of the contradictions. We are trying to encourage people to leave the unemployment queues, especially young people, but, at the same time, their working life is being extended. The later retirement age is, the more the State benefits from PRSI payments and its liabilities are lowered. In the past those whose contracts terminated on their 65th birthday may have been entitled to a contributory or non-contributory pension, but nowadays they are in receipt of a much reduced payment and that has not fully emerged. The State contributory pension is €42 more per week than jobseeker's benefit. The household benefits package also needs to be taken into account in calculations, but everybody does not qualify for it because it is means-tested.
These changes have happened quickly and people who reached 60 years in recent years would have had an expectation regarding the amount they would have to survive on at the age of 65, 66 or 68 years. Those who were better paid had the opportunity and were encouraged through tax relief to set aside money for a private or occupational pension. They had something to fall back on, but the lowest paid are dependent on their PRSI payments and will struggle most with the effects of this change. That was argued at the time in 2011, but it is only now that the consequences are hitting. Are my figures correct? Are those whose contracts terminate at the age of 65 years in receipt of substantially lower payments than previously?
Mr. Fergus Whelan:
The Deputy's figures are right, but his conclusion is slightly wrong. The people who have no occupational pension will be hit hard, but there is a slight chance they will pass a means test. The general workers in the private sector who worked and tried to put aside money for their pensions which have been decimated will be badly hit by this change because they paid their PRSI contributions in the expectation that their pension would be paid. They will not receive this pension and the means-tested benefit. They will, therefore, have no social welfare cover for those three years.
Dr. Orlaigh Quinn:
There is a new pension scheme for new entrants to the public sector and the retirement age is set at State pension age. Therefore, as the State pension age moves up, the age of retirement will move up. Depending on the time at which they entered, some public servants have no age of retirement and could work indefinitely, while it is set at 70 years for others. It depends on the time at which they entered and the arrangements they have in place. When they leave, if there is a gap before their pension is paid, the employer has discretion to pay a bridging pension. Many employees retire at 60 years and receive their pension, but they are required to sign on for these years. It is not just an issue for those aged 65 and 66 years. This has been happening for many years as people retired as part of their contractual arrangements at 60 years, but the employer made up the difference in their pension. A significant number of public sector workers leave early owing to their contractual arrangements, but again, typically, they sign on for jobseeker's allowance and the employer - in this case the public sector - makes up the difference.
Deputy Aengus Ó Snodaigh referred to youth employment. There is no relationship between young and older workers. They are not transferable from one to the other and all of our OECD research suggests this. We are moving to a situation where we will have fewer than two people per pensioner working and our older population will be needed in the workforce because the position will not be sustainable. Currently, there are 5.3 workers to every pensioner and the number is heading towards 2.3. All of the work we are trying to do is aimed at trying to prepare for this change and support older workers. I fully accept that, depending on a person's occupation, he or she may not be able to work. However, that is where we need to make arrangements and specify between different age cohorts. The age of retirement used to be 70 years in Ireland when the type of employment was manual and much more physically demanding.
The Deputy's figures are correct regarding the jobseeker's payment of €188 per week and a pension of €230 per week. That is where some of the savings were achieved with this measure because if people who are now claiming until 66 years remain in work, they pay additional tax and PRSI contributions and, from an employer perspective, they may also help its private pension fund because they are not claiming and are also helping the sustainability of the fund. That is where the difference is and the savings were made because of the gap between the two payments.
Some of my questions were answered but one of them was whether the Department had looked to 2021 and 2028 and whether people over the age of 66 would be required to pay PRSI at that stage also. We will probably have to change the legislation to implement that because, as far as I know, it has not been changed.
Dr. Orlaigh Quinn:
At this point, those over 66 years of age do not pay PRSI-----
I presume things like the free travel scheme and the household benefits package will move in line with the old age pension. Will Dr. Quinn indicate whether the dependant adult allowance will move in line with it also? Mr. Whelan said one could work up to the day before one's 66th birthday. However, I understand that when one is calculating for a social welfare pension - a State pension - it relates to the last full tax year before one's 66th birthday. One could have worked up to September or October and one could be 66 years of age but that is of no value to one from January to September or October because it is the last full tax year before one's birthday which is taken into consideration. One will have paid almost one year's stamps which are of no value. Could we not move the goalposts there and at least take the contributions up to a person's 66th birthday?
Dr. Orlaigh Quinn:
All of our benefits are paid on the basis of the previous tax year because that is the way in which we calculate PRSI - it is a full year. It is difficult to have this discussion without looking at the broader pensions reforms, but one of the areas at which we are looking is total contributions. That is where one would count what a person has paid rather than looking at an average or the way a scheme is worked. It is something on which we are working and at which the Minister has looked. Pretty much like a private sector pension scheme, for every year one pays into the social welfare system, one would get a payment with suitable time periods for credits for women who have caring roles. It would address some of those issues the Senator raised earlier about homemakers.
Dr. Orlaigh Quinn:
When it was announced in the 2010 national pensions framework, a timescale of 2020 was put on it. Again, it is very much on the basis of giving notice in terms of pension changes because some people may lose due to this particular approach while others may gain. We were trying to give notice. Whether to bring it forward is still under consideration.
The point I made about youth unemployment and youth employment was that if we extend people's working lives, 3,000 more people will stay in work each year, which means there will be 3,000 fewer vacancies at the other end. There is a consequence in terms of employment and unemployment, depending on the figures. That might have been one of the reasons the retirement age was changed from 70 to 65 years - that is, to try to create employment at the other end. Obviously, it does not create employment in the case of the public sector because of the public sector embargo, but in the private sector, companies will look to see if their employees have entitlements when they reach their retirement age and will extend working contracts for people if they are not entitled to a pension at 66.
I have a question for Mr. Whelan. How do we compare with other EU countries in terms of what we are doing? What is ICTU asking for, in that this has already happened? In what kind of way would it be looking for it to be mitigated?
Mr. Fergus Whelan:
I refer to all the so-called consultation. There was certainly discussion, but at no point were we able to get any clear answers in that process in regard to the labour market issues we talked about and many of the issues we talked about today. Quite frankly, I believe private sector workers have been done over very badly in this. The only way to bring a bit of justice back to the situation is to push it out and to do it in a more gradual way. To put it at its most crude, if one twin was born before midnight and the other twin after midnight, one gets a full year's entitlement while the other loses a full year's entitlement. That is a very crude way to do it. Everywhere else in Europe is doing it much more gradually. I suggested a way in my submission. That was put to the Department and was, in the usual fashion, pushed aside as being of no relevance. No country is going as far and as fast as we are. We should slow this down and should not go to 68 years. We should go to 67 and should do so in a much more gradual fashion so that the load is spread more evenly and does not just fall on a small number of workers because of their age.
Dr. Orlaigh Quinn:
These are policy decisions made by Government, but what I would say - this is endemic in any social security system - is that no matter where one sets a threshold, somebody will be on the other side of the line and will suffer while somebody else will gain. It is extraordinarily difficult to set that in any of our social welfare schemes. In terms of how we compare with other member states, other member states have similar issues but due to their demographics they have had much longer to prepare. Effectively, Ireland lost a generation in the 1950s, so our profile is very different from other member states and, as a result, the impact on our public finances will hit much faster than in other member states.
I thank our guests. We will continue to consider this matter. We are having a meeting in March on the broader issue of pensions and the White Paper on Pensions. The issues discussed today will inform that debate also.