Willie O'Dea (Limerick City, Fianna Fail) | Oireachtas source

The pension time bomb has never ticked more loudly. A recent unpublished report commissioned by the Government indicates that the gap between future social welfare liabilities, of which pensions are a large part, and the revenue to fund them stands at a staggering €324 billion. The time was never less appropriate for people to make provision for themselves. We are living through the worst economic turbulence in the history of the State. Hundreds of thousands of people are living from day to day and cannot even imagine putting money aside for their future but, even if they did, where would they put it, in view of the number of privately run pension schemes which are technically insolvent? Approximately 772,000 people are enrolled in pension schemes in this country, half of whom are in the public sector. A further 200,000 self-employed people also have pensions. Given that there are 2 million people in the workforce, these are extremely worrying figures. It is even more worrying that more than 80% of private defined benefit pension schemes, or four out of every five, are technically insolvent. The response of the Government to this problem was to turn the screw even more, thereby forcing many household names to contemplate winding up their schemes. I refer to AIB, Arnotts, Independent News and Media and even IBEC. This decision will leave those who are yet to retire with far less than they expected, and many will be left with nothing.

Temporary relief was provided by deferring the deadline for trustees and employers to submit recovery plans and by section 50 of the Pensions Act 2009, which allows distressed schemes to reduce member benefits. These measures had as much impact on the pension problem as they had on the temperature in Timbuktu. More than 80% of schemes remain technically insolvent.

The problem is not confined to the asset side, because asset values have generally recovered from the low point reached in March 2009. Arguably, the main problem is now on the liability side. The biggest problem for Irish defined pension schemes is that the minimum funding standard requires them to have sufficient assets to purchase annuities even though they do not have to do so in practice. The annuity rates of so-called safer countries have fallen to very low levels in the past three years, thereby driving up the cost to pension schemes of buying out pensioners. It now costs approximately €210,000 to secure an annual pension of €10,000 for a man aged 65, compared to €140,000 a few years ago. The only concession offered by the Government is to give the trustees the option of buying sovereign annuities for their pensioners, assuming they would purchase such annuities in the event of a wind-up. This approach has been widely criticised because of the substantial risk element involved. Sovereign annuities have a role to play but they are clearly unfit for widespread use. Earlier this year the Government introduced legislation which required defined benefit pension schemes to build up an additional risk reserve of 15% over the next 11 years. Surely this is the worst possible time for such a measure when most schemes cannot even address their current liabilities.

The main selling point for private pensions is tax relief on contributions. A survey published last week by Irish Life, which is Ireland's largest private pension provider, found that four out of ten of its customers would stop funding their pensions or sharply cut back on their contributions if the Government lowered tax relief in the budget. This is extremely serious, especially when further survey evidence indicates that 100,000 of those already in schemes can no longer afford to make payments and that the number of private pension scheme members has decreased by 38,000 since 2010.

I raise this issue because it is a cause of concern for a large number of people and companies. I ask whether the Government has developed any plan to begin the process of remedying the problems that have arisen.

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