Richard Bruton (Dublin North Central, Fine Gael)

I move amendment No. 7:

In page 16, between lines 2 and 3, to insert the following:

8.—Part 30 of the Principal Act shall be amended by inserting a new section:

"785.—A person who reaches retirement under a Defined Contribution Pension Scheme shall from 1st March 2008 not be required to purchase an annuity unless they do not have an income equivalent to the Non-Contributory Old Age Pension prevailing at the time of retirement.".".

I do not pretend the amendment has been well drafted but it is to pick up on an issue we discussed on Committee Stage, that is, that under defined contribution schemes, people reaching retirement are now compelled to purchase annuities. This is in stark contrast to people in the self-employed category. As the Minister knows, his predecessor, Mr. McCreevy, brought in very generous provisions for the self-employed to set up these retirement funds. One of the big advantages of the retirement fund is that when one reaches retirement age, one does not have to take out the money in an annuity unless one's income is extremely small. I believe a figure of €12,700 has been set. If one can show one has €12,700 from some other source and that one is self-employed, one does not have to take out one's money in an annuity.

As the Minister knows, the problem with annuities is that they are extremely bad value in the marketplace at present because they are tied to the yield on Government bonds, which has been very low for some time, and they are related to life expectancy, which is lengthening. Buying annuities is extremely bad value. The most inequitable element of them is that if one buys an annuity and one happens to die, one's annuity dies with one. Presumably, the insurance company or whoever sold one the annuity is the beneficiary of all one's careful savings over one's lifetime and those who one leaves behind do not get the benefit.

There is a big issue about these defined contribution schemes anyhow, whether people are putting enough into them and whether they will have enough to support themselves when they reach retirement. Adding even more difficulty by compelling people to buy a bad product in the marketplace seems inexplicable. The Minster said he wanted to discuss the issue of pension reform with the social partners. He also has the Green Paper. The Irish Congress of Trade Unions believes it is bad policy to force people to buy annuities, and I have not heard anything to the contrary from the employers, the third strand within social partnership.

On the law of averages, approximately 60,000 people reach retirement each year. Before the Minister moves to change this in next year's, or in the following year's, Finance Bill, perhaps 60,000 or 120,000 will have been forced to purchase these annuities if they are in a standard PAYE scheme under defined contributions. Those of us in the public service are in the privileged position that we do not have to worry about this because we have a defined benefit. However, we are becoming rare animals. Nothing like this is provided in the private sector.

What does the Minister think about this compulsion to buy annuities? As most of these people have a social welfare contributory pension, it is not as if they will be without anything. They meet the test the former Minister, Mr. McCreevy, set for the self-employed. They will not be penniless if they do not buy the annuity and if they use their money foolishly because they will still have the contributory pension. They will have fulfilled the requirement the Minister's predecessor felt was needed to be imposed on the self-employed.

Does the Minister believe this compulsion to buy annuities is still appropriate? If like me, the Irish Congress of Trade Unions and many others, the Minister believes it is not, why not get rid of it now rather than put it off to some future date?

I do not know what the cost to the State would be as a result of making such a change. I suspect it would probably be minimal, although perhaps there is some hidden cost. Presumably exchanging being forced to buy an annuity would not have a tax implication because one way or the other, the resource will come to pay tax as it is realised in an income stream for the individual involved. I do not believe it has a tax implication.

Many people reaching retirement, including people around the House, face this issue. I received a spontaneous telephone call this morning from someone who said this was terribly unfair and who was not from my constituency. I said I was going to debate it with the Minister today and I would find out what he thinks about it. It is an issue which really matters to those affected. If we believe it is worth doing, why not do it now and not force at least another 100,000 people into a straightjacket of a scheme which we really do not believe should be in place in the long-term?

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