Brian Cowen (Laois-Offaly, Fianna Fail)

The amendment was also proposed on Committee Stage and is concerned with contributions to occupational pension schemes by those on lower incomes. It seeks a tax credit to be contributed by the Exchequer to the individual's pension scheme equivalent to relief at the higher rate of tax of 41%. I take it this tax credit would be instead of relief the individual may receive at the standard rate assuming he or she is in the tax net.

The proposal is similar to a recommendation made in the national pensions review by the Pensions Board published last year. It provides a good base for the Government's consideration of the overall pensions position. As was stated, we are committed to the publication of a Green Paper on pensions policy. My Department will have an input into the Green Paper which will outline the major policy choices and challenges facing us in the pensions area. Important issues such as the appropriate incentives to encourage greater supplementary pension coverage among the lower paid are best left for consideration in the context of the Green Paper, given the extremely serious policy issues involved.

Deputy Bruton suggested this would be a minimalist approach at this stage. I understand his line of argument in taking up the recommendations of the national pensions review. It is important to point out that it is difficult to give an accurate response to the question of what it would cost to provide tax relief at the higher tax rate to all taxpayers making pension contributions. This is for a number of reasons. Relevant data are not available for each individual contributor to a pension scheme, particularly occupational pensions schemes, to enable a precise estimate of the cost of the proposed amendment. In addition to the cost of providing tax relief at the higher rate in respect of contributions by existing contributors to pension schemes, the cost would increase if the higher rate of tax relief encouraged new contributors to pension schemes, which it is hoped it would. Having stated all this, I have no doubt the cost of this proposal would be hundreds of millions of euro.

A similar proposal to the proposed amendment to the Finance Bill was brought forward by the Pensions Board in its national pensions review report published last year as a means of enhancing the attractiveness of a system of voluntary pension provision. This proposal and others are being examined and considered by my Department as part of our input to the Green Paper on pensions policy which we are committed to published within the next few months.

The Government's position on pension reform is reflected in the statement issued in August by my colleague, the Minister for Social and Family Affairs, when the report of the Pensions Board on supplementary pensions, Special Savings for Retirement, was published. This statement recognised the many challenges in pension coverage, while also making it clear that no pension system was worthwhile unless it was sustainable. The statement also highlighted the need for an examination of pensions policy to recognise the number of persons aged 65 years which is projected to double from the current level of approximately 464,000 to almost 1 million by 2030. The public cost of providing for those in this age group will rise from 13% of GNP to more than 17%, apart from other pressures or enhancements to social welfare or public services. More than four workers contribute to the support of every pensioner. This will fall to 2.7 per pensioner in 20 years and less than 1.5 workers per pensioner in 50 years. People live longer and healthier lives. This in itself must inevitably mean a longer working life is possible and that over time a higher pension age may become the norm.

The financial and economic sustainability of the pension system is extremely important in the context of future decisions the Government may take in this area. Changing demographic trends in coming years will present a number of significant interrelated challenges which can only be addressed if the economy remains competitive and improves its long-term growth potential. It is vital that policy development in this area is underpinned by a comprehensive assessment of the impact on competitiveness and macro-economic performance in order that the right mix of policies can be developed for the long term.

As I have stated, we are committed to publishing this Green Paper outlining the major policy choices and challenges in this area. It will take account of the views of the social partners and is being progressed by my colleague, the Minister for Social and Family Affairs. The Government is also committed to responding to the consultations arising from the Green Paper within 12 months of the ratification of the Towards 2016 social partnership agreement by developing a comprehensive framework for addressing the pensions agenda over the long term.

In the analysis carried out by the national pensions policy initiative and accepted by the Pensions Board in its national pensions review report last year, it is estimated that 70% of the workforce aged between 30 and 65 will need supplementary pensions by 2013 in order to meet the 50% replacement income target set by the NPPI. For the NPPI target group aged between 30 and 65, the pension coverage level in the fourth quarter of 2005, according to the CSO's Quarterly National Household Survey, is close to 62% currently.

With regard to the review of reliefs I undertook on becoming Minister for Finance, I acted immediately in respect of a report I received, with policy issues arising from studies. To answer the Deputy's question, of the 116 applications — not hundreds of applications — for personal fund thresholds, eight are above €20 million.

I introduced limits in last year's Finance Bill. One can argue about the level of pension fund limits, or the tax-free lump sum limit I set in last year's Finance Act. It is not an exact science and at the end of the day, the figure chosen was a matter of judgment. Some would think it fine, others might think it too generous or restrictive. As I stated on Committee Stage, given increased longevity rates, a pension fund of €5 million less a lump sum of €1.25 million would give a male retiring at age 60 an annual pension of approximately €110,000 and a male retiring at 65 an annual pension of approximately €135,000. This is viewed against a background of over 100,000 individuals expected to have incomes in excess of that figure of €100,000 this year alone.

The other point is that these pensions are fully taxable. The public policy objective behind people who have a larger disposable income, who would regard pension provisions as an option, is to defer unlimited consumption now to the future, where the taxable pension becomes part of the consumption pattern at a later stage. It makes sense in terms of sustainability of long-term growth rates to have such a policy objective.

When some of these issues came to my attention I acted immediately. The rules I brought in apply to all the circumstances and as they cannot deal with matters retrospectively, they deal with the situation from now. I closed off excessive funding for pensions, limited the amount which can be drawn from pension products by way of tax-free lump sums and restricted the capacity of individuals to use approved retirement funds as purely long-term tax-exempt vehicles.

Taking the specific points made, I do not believe in view of all that detail and advanced policy work in place, we need to take on board all of these issues so that we obtain a sustainable position going forward, recognising the demographics and the need for supplementary provision. I will accept the need to ensure, where possible, that people on lower incomes can regard pension provision as an option if we want to retain a voluntary system. If people are considering a mandatory system, different considerations will clearly apply.

We should consider how that will play out in terms of the competitiveness and macro-economic performance of the country in future, which is an issue requiring a very detailed actuarial assessment currently being undertaken. It is not that the Department of Finance is indifferent about these issues, quite the contrary. The Department has a specific role to play to ensure sustainability issues are fully understood, contemplated and taken into account. I do not state this simply for the purpose of intimating this is a matter for prevarication, but rather to ensure we get it right.

Deputy Bruton has put down this amendment for the purpose of this discussion and he would advise me to go ahead in this specific area. Given the social commitments we have on how we will handle the matter, there is a need to put it on the table so everyone can understand the issues and reach some decisions. The Government will have to take the ultimate decisions in the absence of unanimity and a full meeting of minds. Everybody should be aware of the range of options, and the Green Paper process will enable us to do so. We can then return to the issue sooner rather than later with a comprehensive response.

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