Mary Hanafin (Dún Laoghaire, Fianna Fail)

An annuity is a contract sold by an insurance company that provides guaranteed payments at specified intervals for the duration of the purchaser's lifetime in exchange for an upfront cash lump sum. Annuity contracts are a well-established feature of the pensions landscape and are likely to remain so. They provide a secure means of converting pension savings into pension income and avoid the danger that pensioners could exhaust their pension savings in their lifetime.

Notwithstanding their advantages, there has been considerable discussion as to whether the market for annuities is operating efficiently and effectively. While the cost of annuities has risen sharply in recent years because of falling interest rates and improving longevity, there is a perception that costs are excessive and that the State could provide such products at a cheaper rate. Other factors, including the operation of the funding standard for defined benefit schemes, which is linked to the cost of annuities, have also led to proposals that the State should play a more active role in this area.

It should be noted that the State is already heavily involved in annuities through its regulatory role and through the tax concessions afforded to individuals in accumulating their retirement savings. The State has also facilitated the development of alternative approaches to annuity provision, such as approved retirement funds for certain pension schemes. In this regard, calls have been made to extend the availability of such alternatives to all defined contribution pensions schemes that are currently required to purchase an annuity.

In keeping with the Government's aim of encouraging people to plan properly for their retirement, it is important that the annuity market serves its customers as effectively and efficiently as possible. As part of its formulation of a comprehensive approach to future pensions policy and the Green Paper on pensions, an independent study of the Irish annuity market was commissioned to evaluate its efficiency and effectiveness. This study examined the arguments for the State to become directly involved in the provision of annuities and the broader implications of any intervention by the State in this area. The results of this study have informed the development of future policy.

Any decision, however, on the introduction of a State annuity scheme such as that suggested by the Deputy will be considered in consultation with all relevant Departments and proposals thereafter will be reflected in the national pensions framework, which the Government is currently finalising.

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