Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after “Dáil Éireann” and substitute the following:

“notes that:

— there are many different types of pension; the State Pension (Non-Contributory)which is means-tested and funded from general taxation, the State Pension (Contributory) which is not means-tested and is funded from social insurance, public service pensions, defined benefit and defined contribution pensions which are private trusts set up by employers and private pension arrangements like personal retirement savings accounts; the challenges and issues relating to each of these is different;

— over the past decade successive Governments have increased the basic weekly rate of the State Pension on a cumulative basis, well ahead of inflation;

— a welcome increase in life expectancy brings with it increased pension costs; without raising the State Pension age, pensions will become unaffordable and unsustainable in the future and it will not be possible to maintain their value;

— the changes to rates, bands and minimum contributions introduced for State Pensions(Contributory)were designed to help ensure that the Social Insurance Fund went back into surplus and remains so;

— State Pensions (Contributory) are paid out of the Social Insurance Fund, not general taxation and any increase in the cost of the contributory pensions would have to be paid for by those paying Pay Related Social Insurance (PRSI) contributions - employees and their employers;

— the rate of consistent poverty amongst those over 65 is 2.1 per cent compared to 8 percent for the general population; for neither men nor women over 65 is the rate of consistent poverty over 2.5 per cent; and

— there is no compulsory retirement age in Ireland but individual employment contracts, including many of those employed by the State, may contain a retirement age; more flexible working and pension options need to be developed to give people greater choice, for example such as if they wish to remain in their current employment beyond 65; and

agrees that:

— pensions are a particularly complex area and any change to the rules is likely to result in both winners and losers and have an impact in terms of cost on the exchequer and/or the Social Insurance Fund;

— the impact of any reforms on women and men and other groups need to be carefully considered and analysed before making them; and

— as a result an analysis of the impact of various possible changes will be given to the Oireachtas Joint Committee on Social Protection for its consideration in early 2017.”

I welcome the opportunity of this debate on State pension policy. I think we will have to have many more debates on this issue. Discussions on pensions can often be very confusing. This is because there are many different types of pension, including the State pension (non-contributory) which is means-tested and funded from general taxation; the State pension (contributory) which is not means-tested and is funded from social insurance; public service pensions; defined benefit and defined contribution pensions, which are private trusts set up by employers, and private pension arrangements like Personal Retirement Savings Accounts, PRSAs. The challenges and issues relating to each of these arrangements are different and different solutions will be needed in different cases. The contributions I have just heard in many cases demonstrate how confusing and complex these issues can be. For example, the marriage ban was never the law in Ireland. It has never been illegal for married women to work. The marriage ban was a contractual obligation that applied mainly, although not exclusively, to public servants. Public servants recruited prior to 1995 paid and still pay a lower PRSI rate of 0.9% and so they are not entitled to the State pension anyway. They are not entitled to it whether they are men, women or whether married or not. That is the work that works. Sinn Féin is clearly confusing the State pension with the State contributory pension in that regard. The motion as drafted does not comprehend most of those cases.

Another Deputy spoke about low pay. A weekly contribution is worth the same regardless of how much is paid. In other words, whether a person earns €1,000 per week and pays 4% PRSI, which amounts to €40 per week in PRSI, or €200 per week and pays 4% PRSI, which is only €8 per week, that counts as one contribution. The contribution of a person on low pay paying €8 per week is ranked equal to the contribution of a person on high pay earning €1,000 per week and paying €40 PRSI, so Sinn Féin's understanding in terms of how things work is wrong. The motion appears to refer to changes that were made in 2012 and 2014. These reforms were the restructuring of the rate bands under the State pension contributory and the abolition of the State pension transition which standardised the State pension age at 66. The motion does not mention the positive changes in the State pensions over recent years. It does not mention the increases in the rates of the State pensions this year and last year or the restoration of the Christmas bonus. It does not mention the large increases in spending on these pensions from €3.8 billion in 2005 to €6.9 billion in 2015. It does not mention the huge increase in pensioner numbers from 409,000 persons in 2005 to 577,000 at the end of 2015 and the projected further increases in the years ahead. This, of course, gives rise to a major challenge to future sustainability and affordability, which, again, Sinn Féin does not appear to acknowledge in its motion.

The Sinn Féin proposal to make changes to the State pension would cost €150 million next year and would, therefore, be a significant charge on the Social Insurance Fund and the Exchequer. The cost would rise in 2018 and every year thereafter yet Sinn Féin has put forward no proposals in its motion to fund any of its plans. Over the past five years, the Government has worked hard to bring the Social Insurance Fund from deficit to surplus. This year, for the first time since 2008, the fund will have a surplus. We have also reduced the Exchequer deficit considerably and intend to balance the books by 2018. Prudent management of the public finances will allow us to continue to be able to pay the State pension and to make modest increases in the years ahead. Running the Social Insurance Fund in surplus allows us the headroom we need to accommodate rising life expectancy and a spike in unemployment should there be another downturn. We all know the awful consequences that can arise for current and future pensioners when pension funds are not adequately and sustainably funded. By proposing to spend another €150 million per annum on pensions without a funding proposal to match it, Sinn Féin is advocating an approach that will undermine the affordability and sustainability of pensions in the medium term. This is reckless and irresponsible and it is bad for current pensioners and particularly bad for future workers and pensioners.

The fundamental objective of any competent pension policy is to ensure that pensions remain affordable, sustainable and retain their purchasing power or value into the future. For this reason, I have proposed a counter-motion which outlines the challenges and the achievements in this area over the last few years and indicates the general approach the Government will take into the future. The challenges we face are well known. A welcome increase in life expectancy brings with it increased pension costs. Without raising the State pension age, pensions will become unaffordable and unsustainable in the future and it will not be possible to maintain their value. We will all lose out in that scenario. The reality is that current workers aged 34 will be pensioners by 2050, and if we expect them to contribute to the pension system, we must be able to promise them that by the time they retire, they will be entitled to a pension which is at least as good as the one they currently fund for today’s pensioners.

The changes to rates, bands and minimum contributions introduced for the State contributory pensions were designed to help ensure that the Social Insurance Fund was returned surplus, as it has done this year, and remains so. The current Government, and previous ones, have sought to combine increases in the rate of the pension with reforms that make the system sustainable into the longer term. This motion proposes that we ignore that reality and undo the important first steps we have taken to deal with this huge demographic challenge. It is my view that where barriers exist to longer working, the Government, employers and workers can work together to remove these barriers while maintaining the safety nets available to people of working age. We are not alone in having to face these challenges. Every country in the developed world faces similar issues and the general approach adopted by nearly every country is to increase pension age in line with life expectancy and to attach greater conditionality in that regard. Between 2008 and 2013, 12 of the remaining 27 EU countries increased the pension age for men and 16 increased it for women. While these pension ages were largely lower than ours during that period, by the end of this decade, many countries will have a higher pension age than Ireland.

In the 1970s, the State pension age was 70 and people rarely lived beyond their mid-70s. Today, the State pension age is 66 and, thankfully, people regularly live into their 80s and 90s. One does not to be an actuary or a mathematician to understand the funding and affordability issues that arise as a consequence. There has been significant restructuring of the pensions systems in other countries. For example, the UK - this also applies in Northern Ireland - recently merged the basic and second State pension into a unified new State pension. This new pension has a rate of £155.65 for people with 35 contribution years, which is less than €185 per week, with the rate being reduced for people with fewer contributions.

5 o’clock

We pay the full pension to people who in many cases have made contributions for only ten years. As the Deputies will be aware, the current rate of the State pension here is more than a quarter higher than the figure I have given, even before the forthcoming increases. I believe that we can take some comfort in the fact that, despite the financial crisis, we still manage to pay a State pension that is significantly higher than in many larger economies in Europe. The result of our policies is that those over 65 have a consistent poverty rate of just 2.1% compared to 8% for the general population. For neither men nor women over 65 is the rate of consistent poverty over 2.5%.

In the future, there will be a number of challenges. Clearly, if we are to maximise the benefits of longer life, we need to ensure people who can work longer are facilitated in doing so. There is no compulsory retirement age in Ireland but individual employment contracts, including many of those used by public employers, contain a retirement age. More flexible working and pension options should be developed to give people greater choice - for example, if they wish to remain in their current employment beyond 65. If public policy is to encourage workplace reform that facilitates working beyond traditional retirement ages, then it is appropriate and necessary that the State, as the largest employer in the country, should be seen to take a lead with its own employees.

In my role as Minister for Social Protection, I have received many representations, from public servants in particular, expressing frustration that they are being compelled by the State to retire from their current job at 65 or younger, regardless of the fact that they feel they have a lot more to give and would have a strong preference for remaining in the workplace. I am aware of several cases where crucial personnel working in the health sector retired sooner than they wanted to and subsequently could not be replaced. I have raised this matter with the Minister for Public Expenditure and Reform, and I believe that there can be a change in this area, which, in turn, will provide leadership to the broader economy. I know the Minister of State, Deputy Helen McEntee, who will speak later, is of the same opinion.

The contributory pension is just one element of a State pension system that produces similar outcomes for women and men despite very significant differences in income and contributions during working age, but I do acknowledge that there are anomalies and aspects that are unfair. My officials are working on proposals to replace the current averaging system with a total contributions approach, which will provide a fairer basis for calculation of contributory pensions in addition to removing anomalies. There is no pot of money for this change and, as with any such reform, there may be losers as well as winners if the reforms have to be cost neutral. Crucial to the design of the final scheme will be credits for periods spent caring. The position of women, but also some men, is central in this.

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