Róisín Shortall (Dublin North West, Labour)

I thank Deputy Hayes for raising this matter. Members will be aware of the recent and upcoming changes to the State pension provision which have been announced. I take this opportunity to explain on behalf of the Minister for Social Protection her reasons for making these changes.

As Irish society has changed, pensions policy has evolved to reflect these changes. A key focus has been to ensure that the State pension is sustainable in light of demographic changes. This is compounded by the wider need for sustainable public finances.

The Government's primary consideration in making these changes has been to ensure that the system is on a financially sound and sustainable footing. Ireland is not alone in this regard as all ageing societies in the West face a similar challenge. The OECD put it well when it stated, "Policy-makers are facing the challenge of providing a short-term response to the crisis without losing sight of the longer-term structural reforms needed to put pensions on a solid foot in light of population ageing". In this context, the Government has asked the OECD to examine current pensions policy to ensure that it meets the needs of future generations.

The actuarial review of the Social Insurance Fund will be published in June. The scheme is in deficit to the tune of €1.5 billion so there will be a significant challenge in putting our social insurance system on a sustainable footing. This will be an important base line for the assessment of the sustainability of all social insurance schemes, including the State pension contributory.

We cannot overstate the challenges facing the Irish pensions system. The population share of those aged over 65 years and over is expected to more than double between now and 2050. People are living longer and healthier lives, with average life expectancy set to rise even higher in the future, at up to 88 years for women and 83.9 years for men. The number of older people is increasing. A total of 11% of the population is currently over 65 years and this is expected to increase to 22% to 26% in the period 2050 to 2060. The period for which an average pension will be paid will be greater than the period for which a pension is paid currently.

In contrast, over the same period, the proportion of the population who are of working age is expected to decline from approximately 68% to 58%. There are currently six people of working age for every pensioner and this ratio is expected to decrease to less than two to one by mid-century. Therefore, the task of financing an increasing pension expenditure will fall to a diminishing share of the population who are working. State expenditure on pensions will increase from approximately 8% of GDP in 2010 to almost 12% in 2060.

The central objective of the Minister for Social Protection is to reform the system so that it is viable in the future. If we are to deliver on the social contract to those in retirement, we need people to remain in work for as long as possible so that we can provide the necessary retirement supports. The abolition of State pension transition in 2014 will go some way towards this objective. Under current rules, the recipients of State pension transition are not permitted to be in full-time employment. The vast majority apply for the contributory State pension at age 66 years. There are almost 300,000 State pension contributory recipients compared to 12,000 State pension transition recipients, many of whom have come from other social welfare schemes. The standardisation of the State pension ages at 66 years may allow more people to remain at work as there is no barrier to work for those in receipt of State pension at 66 years.

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